The Importance of Reviewing Your Credit Approval Process
While it might seem boring, it’s still one of those things (like spring cleaning), that really should be done to keep issues from creeping up on you. We’ve listed a few compelling reasons for taking a few hours to look over your credit approval process for your accounts receivable department.
Industry conditions shift as time goes by. Last year, the average Days Sales Outstanding may have been 90 days to accommodate an economic slump; but this year, something changed, and your competitors are adopting stricter credit terms and requiring a 60 day payment. Keeping close to your industry standard requires shifting along with it! Otherwise, you may start to wonder why you end up with all the customers who can’t seem to pay on time.
It can be wise to make exceptions for special cases, but a review of your credit approval process is necessary to ensure your sales department isn’t overriding credit limits more frequently than they should. Using a credit scoring system can help your team keep track of your customers most of the year, but if they’re allowing unworthy companies more credit than they should, it’s time to adjust your sales teams attitudes towards credit.
Everybody likes a discount. They like working with people who give them discounts. How are your discounts approved? Is it up to the judgement of your sales team or is there a process going through your accounts receivable department? Having guidelines in place for your sales team to determine when it’s a good idea to override and when not to helps keep your DSO low and your invoice collection high.