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All About The Money

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.

Michael Dennis, MBA, CBF, LCM

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.

3 Responses to “It’s All About The Money – Michael Dennis, CBF”

  1. Jodi Owens says:

    Ship and Pray – Love it!

  2. Cathy Peterson says:

    And a few votive candles can’t hurt.

  3. Guy Nishida says:

    Dennis,

    As a practical matter, i believe it is difficult to find the time to update credit files regularly and because of pushback from the account/sales, there are often opportune times. When the payment history indicates a need to reduce credit or when the needs increase, the credit department is positioned to request the update.

    The more important question for me is: In your opinion, what dollar credit amount should trigger a need for a financial statment? I always read recommendations that use phrases such as your “large credit lines” but I have never seen any attempt to quantify that term.

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