In business-to-business credit granting, can the credit department withdraw or reduce open account terms at any time for any reason or for no reason? I think most people would say ‘Yes’. In my opinion, the answer is ‘Maybe’. For example:
- You cannot reduce or withdraw open account terms if the decision to do so is based on factors including Race, Religion, Age, or Sexual Orientation.
- You cannot reduce or eliminate open account terms if there is a law that prevents you from doing.
You might respond that this is not the case in the United States. Assuming that is true, my question is this: Are there laws limiting your right reduce the credit limit in the other countries in which you do business?
If you have a contract with a customer that limits or prevents you from taking unilateral action in connection with lowering the credit limit, then obviously the actions of the credit department in this regard are constrained.
What are your opinions of this subject? As always, I welcome your feedback.
This topic will be covered at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit www.creditscapeconference.com. I hope to see you there.
Michael C. Dennis is the author of the Encyclopedia of Credit, a free, fast, internet resource for credit and collection professionals. He is a frequent instructor at CMA-sponsored educational events. His most recent book, “Happy Customers, Faster Cash,” is available at amazon.com. He can be contacted at 949-584-9685.