Some sellers offer a credit or discount if a buyer chooses to
pay invoices within a specified period of time after delivery,
or pays for the goods on delivery. From time to time, a customer
that earned and took cash discounts in the past will suddenly stop
doing so. The most likely causes, in descending order are:
A. Temporary cash flow problems.
B. A change in personnel in the accounts payable department
[such as a reduction
C. A change in priorities for the customer's accounts payable department.
D. Long-term cash flow problems, or other serious financial difficulties.
A change in a customer's payment pattern is [or should be] a red flag to
credit professionals. The first thing that should be done in this scenario
is for the credit manager to call the customer's Controller of CFO and ask
about the decision not to discount invoices. If the decision not to schedule
take advantage of your cash discount is because of reasons B or C [as listed
above], this call may cause the customer to begin discounting again. Why?
Because if the Controller or CFO was unaware that accounts payable was not
taking advantage of discounts he or she will almost certainly instruct the
accounts payable department to do so.
On the other hand, if the CFO or Controller indicates that the
company will not discount and does not explain the decision, it
is likely that the buyer stopped deducting based on reasons A or
D. In this scenario, it is a good idea to update and then review
the customer's credit file to make certain that there are no problems
likely to cause immediate concern for your company as a creditor.
Steven Kozack is a business consultant specializing in helping
companies to reach their sales and profit targets while monitoring
and managing credit risk. He can be reached at by email at email@example.com