Method 1 needs constant revision as sales increase but is a useful trigger for re-checking the risk at intervals. Method 2 is better as sales staff have the authority to sell up to the Credit Limit, which needs less frequent revision.
As well as the amount of credit, a risk code can indicate the likelihood of being paid late and therefore how closely you need to watch the account. For example:
Code C identifies persistent slow payers, county court judgments, markedly worse solvency. Insolvencies will then come as less of a surprise and all should be from the C category.
Despite the risk, you may have to take on some C accounts if you can't get enough business from A's and B's. There is good profit to be had from C's if you monitor them carefully and minimise your risks.
If you identify your C customers, you can put extra sales effort into the A's and B's in future to put your business on a sounder footing. But remember to review these codes over time.
Make sure your staff are aware of customer credit limits.
Payontime.co.uk is owned by The Credit Protection Association Limited – Company Number: 217953
Address: CPA House, 350 King Street, London W6 0RP - Tel: 020 8846 0000
VAT number: 243 1228 00
The Credit Protection Association Limited is registered with the Information Commissioners Office: Reg number: Z7497476
Parts of this website such as the calculators are registered with the UK Copyright Service: Acc Number 121641 – Reg number 339668