In this edition I would
like to take up where we left off last week and discuss reducing risk.
As you will recall the function of credit management is to identify and
minimize risk. Once the risk has been identified and the decision to proceed has been
determined then the risk must be minimized.
In order to do so, we must take advantage of the "tools" available
to us as credit managers.
These "tools" include Security and Purchase Money Security
Agreements already discussed in this column.
Standby, also known as Domestic Letters of Credit, which are bank guarantees.
Payment Bonds which are akin to Letters of Credit but issued by surety
companies instead of banks.
Continuing Personal or Corporate Guarantees obtained by persons or
corporations who have both the capacity and character to honor them.
Trade Acceptances (I'm showing my age) once commonly used in credit but very
seldom seen today. These are promissory notes with specific dates to be drawn down on
which are signed by the purchaser at the time of sale.
Sight Drafts, are similar to trade acceptances. The most common of these is
the Post Dated Check. (Which contrary to popular belief is not illegal).
Assignment of cash value of purchaser's life insurance. A very easily created
document and quite useful in the collection of monies owed.
Joint Check Agreements, a document which is signed not only by our customer
but our customers customer where they agree to issue the check jointly to both our
customer and us. Although commonly used in the construction trades it can be used in any
Bank Credit Cards, becoming more of an alternative to conventional terms of
credit. One example of using this is to provide the customer a maximum time for repayment
say 90 days at which time if payment is not received in full the credit card is debited.
These are just a few of the examples that we can utililize to assist our
firms in "making the sale" and at the same time reduce the risk in doing so. I'm
certain there are other tools that I've failed to mention in the short space allotted. If
you have a favorite tool that I've not mentioned, I invite you to share it. Send it to me
and I will mention it in a future column.
I wish you well.