The usual credit granting decision is based on the creditworthiness of the customer and the selling company's ability to re-market the asset being sold, if it must be repossessed. Lately, the speed of obsolescence of the underlying assets has become an increasingly important aspect of the second factor. However, a third issue that is rarely considered is the extent of any continuing services provided as part of an asset sale or lease arrangement.
If the selling company provides an asset that will be non-functional or whose performance will severely degrade without continuing service, then the quality of the ongoing service provided will have a massive impact on the company's ability to collect on its outstanding accounts receivable. In brief, a company's own poor support can lead to the credit manager cutting back on customer credit! This servicing aspect of the credit decision can be managed in two ways.
First, if the company is providing its own asset servicing, then the credit manager needs access to the customer complaints database, to ascertain the nature of support problems, and whether they are impacting the performance of the assets sold to customers to such an extent that non-payment will become an issue. Since asset servicing is well beyond the scope of the credit manager's job, he or she must also propagate this potential credit problem among the management team, so that corrective action can be taken as rapidly as possible. Further, the complaints database will reveal which customers are experiencing service problems; this information is extremely useful to the collections staff, who should be aware of it before making contact about an overdue payment.
The second management issue is when the asset servicing is being provided by a third party. For example, if the servicing firm has insufficient staff to maintain assets sold by the company, then this hiring issue will probably lead to delayed payments on open receivables. Thus, the credit manager must factor into the credit decision the performance ability of the servicing third party! If the servicing supplier improves its performance, then credit standards can be relaxed, and vice versa. As was the case for the first management issue, the credit manager needs to monitor the complaints database, and should discuss supplier-related issues arising from it with the manager responsible for coordinating activities with the supplier. If the supplier's performance has a significant negative impact on the credit department, then the credit manager should recommend that the supplier be replaced.