Granting Credit

Question 1

External sources

Answer 1

Trade credit and supplier references
Bank references
Credit reference agency reports
Management accounts
Credit circle meetings
Official publications

Question 2

Refusal of credit terms should be communicated to the
customer in what ways?

Answer 2

1) by letter
2) with reasons for refusal
3) courteously

Question 3

What are the typical credit terms?

Answer 3

1) Cash on delivery
2) Cash before shipment
3) Net 30 days : payment due 30 days after delivery
4) Net monthly: payment for one month’s deliveries to be
made by end of following month
5) Load over load: pay for last load before next delivered
6) Cash with order

Question 4

Possible reasons for refusing credit

Answer 4

1) Poor trade references
2) Concerns over validity of trade receivables
3) Lack of historical accounts due to being a new company
4) Indications of business weakness from ratio analysis
5) Poor credit agency report
6) Poor / non- committal bank reference