CHAPTER 4: CREDIT MANAGEMENT
Visiting the Customer : If this customer is a strategic one, this might be a good time to visit them with the sales rep to reinforce the relationship. Find out what their business plans for the future are and how your business can help them meet those goals. ONGOING CREDIT CONTROLS In addition to establishing credit limits for new customers, and monitoring those of existing customers, there is a need for the Credit team to monitor ongoing transactions and to hold and review those deemed to be risky. This is accomplished by putting an order on “credit hold” until the Credit Department decides to hold or release the order. Typically, all orders are automatically evaluated by a company’s ERP system, which will “hold” an individual order if: The account has been flagged with a “hold code” for past due invoice; Fulfilling the order will put the customer over their credit limit; or The customer already exceeds a pre-determined AR delinquency condition. In such cases, the “held” orders are routed to the credit department, which makes a decision either to allow the order to be processed or holds it until the situation is corrected (usually through a payment or promise to pay from the customer). This mechanism is a powerful tool to control AR risk exposure and delinquency. However, customers will usually be unhappy with an order hold. It is important that the “hold” parameters not be set so tight that a high percentage of total orders are held, which delays order fulfillment, especially if most of the orders are quickly released by the credit department. If an order to a customer will be quickly released from hold, don’t hold it in the first place. It only delays fulfillment of the order and consumes the time of the credit department with no value added. Examples of unnecessarily held orders are: Orders that will put a customer 1% above their credit limit; and Orders for customers that have a small and/or disputed amount past due. (Best practice dictates that known disputed amounts be excluded from order hold calculation. Building in small tolerances for the thresholds is a good idea, as well as setting the credit limits of low-risk customers at a level that will accommodate their needs.)
4.14 Metrics
Every goal should be measured against metrics. The metrics need to be available and reflect the mission, vision, and goals of the company; the O2C process; and the credit management team. The metrics should include a baseline that reflects the original status, the current status, and then a goal (which should reflect where the metric needs to be in a year). Some metrics may have a 5-year or 10-year goal. That should be noted so that there is a full understanding of what needs to be achieved each year. Metrics can reflect productivity or best practices.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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