CHAPTER 4: CREDIT MANAGEMENT
4.6 Assigning a Credit Line
Most companies will use an in-house credit score matrix tool to help to align all staff in assigning lines of credit and treating all new customers alike, which helps the company avoid refusal-to-deal aspects of global Antitrust and Competition laws. This matrix should include the company’s philosophy on how much risk to take to promote sales and increase profitability without jeopardizing too much cash. It is a delicate balance and could make or break your company if not monitored properly to keep bad debt to a minimum. In today’s world, there is also a greater responsibility to research new customers, not only for their financial capability but also as to whether they are legitimate businesses. Fraud has become a very serious concern as technology aids fraudsters in appearing to be valid. All precautions need to be taken before an account is opened to do business. Once a fraud perpetrator is in your system, it is easy for them to steal products and money. As noted above, the first step is to check your country’s blocked list. There are other sources that can be used to validate whether a business is legitimate or a fraudster. RESEARCH Keeping cycle time in mind with regard to delivering goods or services by a customer’s required due date, you don’t need to wait until the customer has gathered all their information. There are other resources that can be used to start researching the customer: Credit bureau(s) rating and full reports (fee-based) Credit or trade groups Bond and debt traders that monitor changes in bond prices that reflect change in risk Personal visit (depending on credit line amount) Sales team Resources: { SEC financial documents for U.S. publicly held companies and the similar documents
required of publicly held companies in other countries { Government websites for licenses and bankruptcy { Trade magazines and newspapers { Customer website, Google, Yellow Pages online
There are also technologies available today that automate the decision process to make it easier to quickly and accurately research creditworthiness, reducing the subjectivity in decision-making.
CREDIT BUREAU Just as there are credit bureaus available for evaluating consumer credit based on an individual’s payment history, there are business or company credit bureaus and databases that can be used for objective evaluation and screening of potential commercial customers for credit, fraud, and capacity- to-pay purposes. The use of a credit bureau is a critical tool for the credit manager. Not only do you get a report on the customer’s financials but also on their credit scores. For businesses, there are fraud scores, industry payment history, and other information such as the nature of the company, legal status, and type of business. Most require a membership with associated fees for their services.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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