Credit Decisioning, Terms, and Collections
Decisioning and terms
A credit decision is approve, approve with conditions, or decline. Conditions include a lower limit, secured terms, a guaranty, cash in advance, COD, or a letter of credit. Common trade terms: net 30; 2/10 net 30; EOM (end of month); ROG (receipt of goods); MOM (middle of month). Cash discounts are priced credit; the seller should compare the discount cost with the carrying cost of the receivable.
Collections
Collections begin before the due date: confirm terms, invoice accurately, and send statements. Age receivables by invoice due date, not invoice date. Use an aging schedule to prioritize: current, 1–30, 31–60, 61–90, and 90+ days. Escalate from reminder to phone call, demand letter, credit hold, collection agency, attorney, and litigation. Document every contact, promise to pay, and broken promise. A credit hold should stop new shipments until the account is current or secured.
Worked example
An account has a $120,000 balance: $70,000 current, $30,000 at 45 days, and $20,000 at 95 days. The 95-day balance is the priority. Call the customer, confirm the invoice and any dispute, obtain a written promise to pay with a date, and place the account on credit hold. If the promise fails, issue a demand letter and evaluate a UCC filing or guaranty claim. Do not ship new orders on the same unsecured exposure.
Traps
Waiting until 90+ days to act; failing to document promises; continuing to ship to a delinquent customer; confusing a credit hold with a permanent write-off; and ignoring bankruptcy notice, which triggers the automatic stay.