A Major Customer Orders More: Review Credit Exposure Before Approval
Growing sales do not determine available credit
When a major customer places another order while invoices remain outstanding, approval should consider money at risk of late collection and upcoming commitments, not just accumulated sales. A strong revenue contributor may also absorb substantial working capital. Conversely, a modest sales customer may represent an unusually large share of receivables on the reporting date.
The following is an adaptable reporting and internal-control framework, not a mandatory limit formula or an accounting allowance determination. Microsoft describes credit controls using limits, customer groups, overdue amounts and order-release approvals. Before configuring software, management needs agreed definitions and decision authority.
Define what consumes the limit, without duplication
Start with unpaid receivables, then consider delivered-but-unbilled items and approved-undelivered orders under company policy. Align the cut-off date, currency, tax basis, deposits and cancellation status. Accounting receivables and commitments used for credit control are distinct data: show them separately before aggregating, rather than treating an order as an accounting receivable.
A common error is retaining the full order commitment after delivery and invoicing, thereby counting it again in receivables. Use linked references and current status to remove amounts that have moved stages. Do not deduct advances until allocation and relevance are verified. Show security or credit-insurance conditions separately; their face value is not guaranteed cash recovery.
Example: receivables fit, but the next order does not
Assume a THB 1,000,000 policy limit on a consistent basis, with THB 600,000 in receivables, THB 150,000 delivered but not yet in receivables, and THB 200,000 in approved undelivered orders. Exposure is THB 950,000. Accepting a new THB 100,000 order in full raises it to THB 1,050,000, exceeding the limit by THB 50,000, although the receivables-only report appears to leave THB 400,000 available. The example assumes no duplicates, advances or other deductions.
Options may include collecting existing invoices first, agreeing an advance, staging delivery after receipt or seeking a temporary increase. Contractual commitments and delivery consequences still matter: a business cannot assume it may suspend delivery at will. Nor should a fixed percentage of last year’s sales replace assessment of loss-bearing capacity and payment history.
Bring concentration and exceptions into the same decision
Show sales, current receivables, overdue receivables, commitments, limits and excess separately, together with the customer’s share of total receivables at the same date. Multiple codes or companies dependent on one funding source may warrant a combined risk view based on evidence. Reporting them as a group does not automatically make separate legal entities liable for one another’s debts.
An exception should record its cap, covered orders, approver, rationale, expiry and collection owner. “Long-standing customer” is not a complete decision record. Define review triggers such as a new missed payment, returned cheque or rapid commitment growth, and check whether repeated overrides have become an unofficial policy.
Start with the decision, then implement the report
Accounting should confirm balances, sales should confirm orders, and the authorised decision-maker should choose approval, conditional approval or no approval yet, with reasons and a follow-up date. Pilot the report on one important customer and trace totals back to documents before expanding. Enabling a credit alert does not by itself validate data or approval authority.
Kerwin & Vance lists management reporting and internal-control services on its website. A useful discussion starts with receivables, orders, credit policy and actual exception patterns to design information for accountable decisions. This framework helps reveal exposure hidden in new work; it does not guarantee collection or eliminate bad debts.
