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Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

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7–30. Preapprove Customer Credit

The collections staff suffers severely from credit that is granted after the sales force makes a sale to a customer. The typical situation is that a salesperson finds a new customer and makes an inordinately large sale to it; the salesperson then badgers the credit department to grant a large credit limit to the customer since there is a large commission on the line. The credit staff yields to this pressure and allows more credit than the supplier’s credit history warrants, resulting in a difficult collection job for the collections staff. The answer to this quandary lies in fixing the credit-granting process well before the collections staff even knows the new customer exists.

The solution is to work closely with the sales staff to create a “hit list” of new customer prospects before any sales effort is made to contact them. The credit staff then reviews existing credit information about these customers, which is easily gleaned from credit reporting agencies, and calculates the credit levels that it is comfortable granting. These credit levels are given to the sales staff, which now knows the upper limits of what it is allowed to sell to each customer. This approach greatly reduces the pressure that salespeople are wont to bring on the credit staff for higher credit limits. A major by-product of this process is that the collections staff no longer has to deal with inordinately high accounts receivable with customers who have no way of paying on ...

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