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When to check credit

Is it common to book orders, place them on hold, and then do the credit check? How are other organizations supporting the business needs for order turnaround time while properly checking and approving credit. If any one can share their process or insight that would be great.


Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

First off, someone posted a credit app as a Resource here on Proformative: My company uses a form much like this and we won't book a deal until the credit check is done. Why book if you would have to de-book down the road? Just do it up front, make it part of the booking process, and it will get done quickly since the salesperson has motivation to help the process along. The customer also has motivation b/c they want your product/service.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

I have issues with the form that is mentioned.

First, D&B is untrustworthy and I wouldn't use them.
P/L'a that are not backed up with either audited
or reviewed aren't worth the paper they are printed on (and check out the CPA firm as well).

Banks won't tell you anything about their customers.

Trade references, are only as good as the due diligence you give the reference. Why would a potential client give you their vendor that they are currently in arrears with?

Other than that, I agree with the timing.

Jim Schwartz
Title: Corporate financial advisor
Company: Wabash Financial Strategies
(Corporate financial advisor, Wabash Financial Strategies) |

It is not common to book an order before making a credit decision. Other than making sales people happy where is the value in a contingent order? At a prior firm, some sales incentive was tied to order booking. Perhaps your company is the same. This is an awkward, illogical arrangement for which no one could demonstrate a clear business need or benefit. Yet, it continues and spawns behaviors like having staff in place to assess credit and book orders until midnight on the last day of a month or quarter.

The sales process rarely happens "overnight." In contrast, there are often expectations that booking should be nearly instantaneous. This is a matter of communication, education and working with others to develop, together, business processes that meet the needs of the company. It's up to you to manage expectations. A sales team that knows the requirements and timing to book a clean order is more likely to help obtain the information to support that objective.

Review/modify business processes to make sure they are achieving the desired objectives and can be performed in the agreed time. Consider booking, without a credit check, small orders of, say, up to $2000. Although Wayne identifies problems with various sources of traditional credit information, these are sometimes the best sources available. Understand the limits of these sources and don't skimp on due diligence.

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

I agree that credit forms are a bit of a joke. I can pay to have certain material placed on my D&B. I would also never select a supplier I am having problems with to give me a trade reference, and the bank is also aware that their long term business association depends on their politically correct responses to requests.

I find that much of the motivation to get things on the books (aside from the team chant at month-end to get everything closed) is the salespeople's desire to get commissions. We tied our commission payments to receipt of payments by customers within terms. This resulted in fewer last minute orders to get a new customer's order on the books, because it wasn't in the sales person's best interest to rush something on to have it come off later, and they wouldn't get paid for their efforts.

Salespeople quickly saw the benefit of starting the credit discussion much earlier so a first order could flow quickly - making the customer and the credit department much happier.

Depending on the size of the orders, there are some options you have:
1) Limit credit - potentially holds up growing an account
2) Limit number of orders per month and not exceeding a certain balance so you don't risk writing off too much if credit checks yield nothing and customer turns out to be a deadbeat.
3) Requiring a deposit - not my favorite as it also limits the ability to grow your business with this customer.
4) The finance people should develop and maintain a relationship where open discussion can yield insight into cash flow issues that you can deal with up front. If you become one of their strategic partners, they will turn to you to discuss growth and be more comfortable sharing their cash flow issues and asking for help.

Michael Topa
Title: Director
Company: MISCOR Group Ltd
LinkedIn Profile
(Director, MISCOR Group Ltd) |

Credit validation should be the first part of the sales process rather than just capturing the order. I agree with the comments regarding the unreliability of D&B and just checking the references given. It is best to have a network of others within the industry that can be called on to learn about a client. They will have the best indication on what is happening. Depending on the size of the order financials, even if not audited and an open discussion with the controller or CFO is meaningful. Also, it gets some buy in regarding meeting terms.

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

I agree with Michael. I always did a vendor pre-qualification before allowing any placements with them.

Nick Sterling
Title: Accounting Analyst
Company: Anritsu
(Accounting Analyst, Anritsu) |

Thank you everyone for your insight. Can anyone share their experience with having a minimum order amount before credit is checked (as suggested above), is there any policy example that someone can share

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

What's your pain level?

Are you willing to loose $100 or $10,000?

That's your minimum order amount.

Balbir Singh
Title: Prop.
Company: Ontime collect
(Prop., Ontime collect) |

I agree with Sara. It is effective to tie commission payments to receipt of payments by customers within terms. This is definitely ensure recovery within credit limit/period.


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