Credit ceilings: who decides, and when the limit frees up

The rep is in front of a good client who wants to order more on credit. Can he say yes? He calls the office. The person who knows is in a meeting. So he takes the order anyway, because a lost sale is his problem today and an unpaid invoice is someone else’s problem in a few months.

From the director’s chair, the same scene looks different. The limit for that client was agreed verbally a while ago, nobody is sure what it is now, and the first sign of trouble is a receivable that has grown past what anyone would have accepted if they had been asked.

Three numbers that are often treated as one

Much of the confusion around credit comes from using one word for three things. DeepComm keeps them apart, side by side:

• Ceiling: what the client may take.
• Outstanding: what he has already taken.
• Receivable: what he still owes.

Add to that the balance on the client sheet, which shows whether the account is in credit because of an advance, or in debit. Someone who reads only one of these figures can easily make the wrong decision: a client may look fine on receivables and still be close to his limit, or the reverse.

Who decides, and how it is recorded

Setting a limit is a management decision, and a sales rep is not the right person to take it alone, however well he knows the client. He does know when the limit has become too tight, though, and the app gives him a way to say so.

The ceiling is asked for by the rep and decided by the direction. The request goes up, and the regional or general director approves it, rejects it, or sets a new ceiling directly. The rep does not have to phone anyone to raise it, and he cannot move the figure himself.

That chain also makes a difference on the day of the visit. The client sheet carries the ceiling, the terms and the balance on the rep’s phone, and he sees what is consumed and what is available before ordering. He knows where he stands while still at the counter, and if the answer is no, he can have that conversation with the client on the spot, or ask for a higher limit, before the order goes in.

When does a ceiling free up?

This is the rule that protects the company most, and it surprises people. The ceiling frees up only with money really cashed.

A client who hands over a cheque feels he has paid, and he expects to be able to order again. In DeepComm, a cheque that is remitted and not yet cashed does not give back any room on the ceiling. Until the bank has credited the account, the risk still exists, so the amount stays counted as consumed. The same goes for a promissory note waiting for its due date.

Some reps will find this strict, and a client may push back. It is a deliberate choice, and it is easier to defend when the rep can show exactly which cheque is still in the cycle.

Using age and behaviour when you review a limit

A ceiling set once and never reviewed stops meaning very much. When a request arrives, the person deciding has more to go on than the amount asked for: the age of the client’s receivables by bracket, whether he is active, at risk or dormant, and his full statement over the period.

That information sits in the same app as the request. Regional management sees it for its own region and general management for the whole company, each within what the role allows.