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Controlling Risk Early in the Customer Relationship
By Michael C. Dennis, MBA, CBF

Occasionally a new customer will test a creditor to determine their sensitivity to late payments. It is important that this situation be addressed correctly and quickly. If this is not done, chances are that new customers will delay payment - and this may set the pattern for the all of the customer's future interactions with the creditor company's credit department. Delinquent new customers must:

  • Be contacted as soon as possible after they become past due,

  • Reminded of the terms of sale,

  • Told that the past due balance must be paid in full immediately,

  • Should be considered for a credit hold,

  • Should have the credit limit re-evaluated and if necessary reduced,

  • And the new customer should be told that future delays in payment will result in the decision to extend credit be reevaluated

Remember that some customers deliberately and systematically test the creditors to determine just how much it can get away with before the creditor takes action such as placing the accounts on hold, or for collection. It is important to demonstrate competency, resolve and attention to detail early in the business relationship when addressing past due balances, and if a new account's payment pattern does not improve, the credit manager should decide quickly whether the customer's open account terms should be reduced or revoked.

One final thought: If the credit department is unable to bring a new customer's payment pattern back into line quickly chances are that the creditor will not have a satisfactory relationship with the customer and the account should be closed, or at the very least the credit limit and terms should be reduced or shortened.

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