The Most Expensive Type of Mistake – Michael Dennis, CBF

Most Expensive Mistake
Most Expensive Mistake

The most expensive type of mistake to make is one that you do not learn from.  Why?  If you do not learn from your mistakes, you are likely repeat them.

In my opinion, every time a company has a bad debt write off, an examination should take place to determine if the credit risk was properly evaluated and monitored, and if the account was properly managed once there was a reason to believe the customer was in financial trouble.  I look for information such as this:
  • Who made the credit decision?
  • Was it properly documented?
  • When was the last time the credit file was updated?
  • What was the first indication that the debtor was in trouble, and what action was taken at that time?
  • What steps were taken to collect the past due balance?
  • When was management informed about the problem?
  • More fundamentally:  Was everything done that could be done to prevent the problem in the first place, and to minimize the impact on the creditor company once the problem became apparent?
Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

I believe that an objective review is critical, and that any and all of the lessons learned be shared openly with the entire credit team.  The intent is not to embarrass anyone.  The goal is turn lemons into lemonade. To make the best of a bad situation and ideally to reduce the chances that the company will lose money as the result of a similar problem in the future.

Do you try to put past problems behind you as soon as possible, or do try to learn something from every bad debt write off?

Michael Dennis’ Covering Credit Commentary. Michael’s website is

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.

One Reply to “The Most Expensive Type of Mistake – Michael Dennis, CBF”

  1. Hi Michael,

    You remind me of what George Bernard Shaw said:

    “Success does not consist in never making mistakes but in never making the same one a second time.”

    Credit professionals should consider mistakes opportunities for learning.

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