CHAPTER 4: CREDIT MANAGEMENT
4.4 New Customer Credit
Organizations usually don’t start the customer onboarding process until an order has been placed. This means the credit process needs to be efficient for the customer’s required delivery date to be met. That said, choosing which validations are absolutely necessary to ensure that only legitimate customers are entered into the supplier master file can vary based on the size of your company and the industry you are in. If the customer validation and credit evaluation cannot be done in time to meet the delivery date, rather than skip validation steps consider requiring that the first order be paid via credit card or cash in advance (as long as the customer is not on the Blocked Party list). This will allow adequate time for the research necessary to open the customer’s account. Some companies require that the first six months of orders be paid via a credit card, and only then decide whether open terms should be established. This has the added benefit of eliminating one-time or short-term customers from the expensive process of researching creditworthiness and potential risk of late or nonpayment. The types of documentation and research necessary to evaluate a consumer (B2C) are very different from those needed to evaluate the creditworthiness of a business (B2B). These differences will be pointed out throughout this chapter.
BEST PRACTICES
“Our bank and claims payment vendor both include OFAC checks as part of their services,” says Federated Insurance Accounting Manager Rachel Peterson. “If we are worried that an OFAC hit may not be legit, we have our compliance area research and may order a background check when necessary. All cases are logged in our system with notes as to when a hit is reviewed and not a true match.”
FIRST STEP In the effort to combat terrorism, narcotics, weapons trafficking, and illicit diamond trading, countries around the world compile lists of sanctioned entities, individuals, and countries with which it is illegal to do business. Organizations must be aware of these lists to ensure that they are not doing business with sanctioned parties. Penalties can be severe. Before any work is done, verification of the consumer or business legitimacy is legally required. You will need the credit application and documentation showing the consumer or business legal name. Then check that name against the blocked parties list to which you are subject. Depending on your country, the names of these lists and the legal obligations vary.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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