Topic: Credit / Working Capital Management

Subject: Developing credit limit criteria
Nancy Fitzgerald
Member: 2005
Posts:4
Submitted on 10-31-12 11:13 am
Message:
I am looking to define criteria by which to objectify the credit limit decision making at my company. Has anyone done this at their companies and are willing to share process/end results? ie New customers would be assigned to a bucket (25k, 50k etc)

Thank you

Nancy
 
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Replies
Allen Solomon
Member: 2003
Posts: 2

Subject: Re:Developing credit limit criteria

Submitted on 12-09-12 12:17 pm.
Message:
I see that this was posted a while ago and wondering if you are still working on this.
As a 20+ year credit manager, this is a basic task.
In essence, you first need to identify objective default risk for al customers. This puts highly capitalized firms at the top, start-ups with limited resources and companies showing obvious signs of distress at the bottom.

Then you determine in your own business' context how to translate into monetary values. At one company selling desktop computing it was easy, so many $$ per seat (staff size) Usually this is not simple.

Finally, translate into actions. Poor risk may be larger buyers in some situations.

If selling is spot with limited repeat, limits make sense. If sales are long strings, then risk can better translate into changing collection patterns, more frequent contact and lower time to stop selling.

For further assistance
Allen Solomon
914-954-1850
 
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