Selling to Marginal Accounts
By Michael C. Dennis, MBA, CBF

Marginal customers present an abnormal risk of payment default or serious slow pay. Many marginal risks share some or all of these characteristics:

• Management is inexperienced and/or ineffective

• The companies are under capitalized, and therefore are too reliant on debt the preeminent form if financing.

• Payments are generally slow.

• Special collection effort is required to keep payments coming quickly enough that the account is not placed on credit hold.

• The customer has a low credit rating.

• The customer has a poor payment history with other vendors.

• The customer has been placed for collection or sued by other creditors over non-payment.

Most companies do not have the luxury of not selling on open account terms to marginal accounts. Why? Because with proper risk management and diligent follow up these customers [in the aggregate] can be a source of significant sales and profits.

A properly balanced accounts receivable portfolio will include a number of marginal accounts. Some might argue that the true test of the credit department's effectiveness and efficiency involves the department's ability to monitor and manage these accounts.