It is estimated that billions of dollars in delinquent commercial credit is currently being carried on the books of both American and international businesses. This figure changes as our economy grows or contracts. Increased competition, diversification of product lines seem to indicate that these figures will continue to move upward. Regardless of the state of either the national or international economy, the necessity to grant credit and to collect commercial receivables using professional methods remains vital to all businesses.

Credit Sales Volumes Are Important

The average commercial business sell between two to five percent of their products for cash. The credit department is responsible for the other 95 to 98 percent of the goods and/or services sold. Businesses have varying percentages of their financial resources tied up in receivables. Actual losses might range from one-half of one percent to five percent of sales without serious results. This depends on profit margin and other factors. Losses can explode to significant sums very fast if not restricted by the credit manager.

Good Customer Relations Are Paramount

The credit department must also be in tune with customer relations. This quality is absolutely necessary in order for the company to prosper when selling on credit. It is very, very easy to say "no" to prospective customers, and it is also very easy to firmly demand payment at the time of the sale. If this attitude reduces sales, then the credit department is not performing its complete function, which is to create a balance between sales and collection of money.

When extending credit to a new customer, the following basic information should be harvested for your credit evaluation and kept on file:

Is the firm individually owned, a partnership or a corporation? You must obtain full names of owners, partners or officers and all business addresses. This is a must. A follow-up form letter to the hastily approved customer may supply this information and the local city directory may be helpful with details of ownership or tenancy. You should, however, get the information before delivery of the merchandise.

How long has the applicant been in business?

Statistics show that 50 percent of business failures are firms less than one year old, 75 percent are less than five years old.

At what bank does the applicant do business?

What is the average size of his bank balance and are there any loans outstanding? The customer may have a financial statement which will reveal this, and certainly a phone call to their bank manager is in order. They might only confirm the existence of an account, unless your customer pre-approves release of the details. A carefully worded and signed application will gain you the most information.

What do the records show?

Are financing agreements kept, or have legal suits been filed? If the amount of credit requested is substantial, additional financial information may be secured from an outside credit information source such as another supplier trade association or business reference. n What are some of the business firms with which the applicant is currently dealing? You will want to check with at least three companies to determine how much credit has been extended and the creditors