As virtually every credit professional knows, making a credit decision is as much an art as it is a science. The stark financial analysis may indicate that the customer should not be granted credit terms, but there are often other factors to be considered. Here is a brief look at some of the nonfinancial issues that affect the final determination:

• The 5 Cs of credit: character, capacity, capital, conditions, and collateral. One credit analyst revealed that his company routinely sold on open-account terms to a customer, whose numbers were awful. The reason was simply that this company always paid its bills and was never late. “I’d rather deal with this customer any day,” says the analyst, “than those large companies who continually string us along for payment even though they have the money.”

• Relationship with the buyer. Oftentimes, if a long-term ongoing relationship with a customer exists, credit executives are more likely to allow the company to go over its credit limit. However, watch the payment patterns closely if this is allowed. Most credit professionals who follow this strategy do it with customers who have seasonal businesses.

• The customer’s payment history. If it is good, some credit professionals are apt to be more aggressive in finding ways to grant open-account credit terms. However, if it has been bad, most in the group indicated that they would be inclined to reduce the credit line if the sales force didn’t squawk too much.

• Profit margin on the product in question.Without a doubt, a company that sells products with tight margins were much less likely to be flexible when extending credit.“We just can’t afford to be wrong,” explains one weary credit professional. However, those with wide margins were more apt to stick their necks out a bit and extend credit.

• Status of the product. Is it already manufactured and sitting in the warehouse? If so, the sales force is likely to bring this to credit’s attention, especially if the end of the season for the goods in question was approaching or if the product had been moving slowly. At this point, some credit professionals are more likely to get creative to find ways to make the sale happen.

• Status of sales goals. Is the sale needed to make the budget? Unfortunately, as the accounting period ends, many credit professionals find themselves being pressured to grant credit for sales that don’t meet credit standards. Several report that this happens with greater frequency if sales goals are not met.

• Role of sales.Will sales be willing to get involved in collection efforts should the customer not pay? While most salespeople are reluctant to get involved with collection efforts, several of the credit professionals indicate that they are able to exact a promise to help in exchange for extending credit in marginal cases. However, most who were able to do this say that they did this mostly with customers who were late payers. The preference of the group was to tie the salesperson’s commission to the payment of the accounts receivable but few are successful on that front.

• Customer’s cooperation. Is it possible to obtain a partial payment up-front to cover costs? In cases where the credit of the customer is questionable and the margins on the product high, a number of credit professionals simply ask for cash in advance for the portion that relates to the out-of-pocket costs. Then if the final payment is not received, the company only loses its profits. This also demonstrates to the customer a willingness to work together. Several who have tried this approach with new customers say that they are ultimately able to convert these accounts into long-term quality customers.

• Mean versus ends. Can this sale be used to leverage payment on an outstanding order? There is nothing more frustrating to a credit professional than to be approached by a salesperson to extend additional credit to a customer who is already late paying other invoices. However, should the customer really want the goods, it may be possible to make the sale if the customer agrees to pay the outstanding invoices. Ideally, such a customer should not only pay the outstanding invoices but make a partial prepayment on the new order.

If, after taking all the factors discussed above into account, credit cannot be granted, credit professionals should look for another “creative” way to grant the credit even if the customer does not meet financial standards. Not only will the company get the sale and have a higher profit, the sales force will appreciate the efforts.