There is a theory that an all-out effort will collect almost every delinquent account. In webinars, I have referred to this as the Ship-and-Pray method of credit risk management. I believe that the right time and the best time to manage credit risk is before the account is ever opened and certainly before orders are approved and released. Once a new account has been set up and orders have been released on open account terms, the power equation shifts from the seller/credit to the buyer/debtor.
Most credit professionals can identify their high risk customers. The real challenge, in my opinion, involves taking appropriate steps to limit credit risk. The biggest challenge involves taking the necessary steps to monitor and manage active accounts. As a consultant, I was frequently surprised at how irregularly some companies update their credit files. And I admit to being mystified about why more creditors do not insist that customers with large credit limits provide updated financial statements on a regular basis.
My suggestion is simply this: Apply a disciplined approach to your risk management process, and insist that customers demanding large credit lines provide financial statements no less frequently than annually.
That’s my opinion. What’s yours?
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.