Marginal Customer Characteristics
Marginal customers represent a particularly high risk of 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 taken together 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. |