Dear Crabby, 

I have an interesting scenario to share with you. A month ago, I received a new credit application with an unusual looking company name. At first blush, the company looked good as I began the credit risk evaluation. This new customer was requesting a credit limit of $50,000 and for us, this is a fairly large credit request that requires considerable due diligence.

Two trade references were provided and I contacted both of them to confirm the highest credit allowed, any outstanding balances, terms, payment history, and other items, along with obtaining credit reports and bank balances. 

One of the trade references confirmed that the highest credit allowed was $100K and that payment was always within 30-45 days. They went on to say that they have been working with this customer for many years and never had a payment issue. 

After confirming a few more items, I felt that as a new customer requesting a $50K limit, we probably should try to get a financial statement and a personal guarantee. When I asked for the financials from the company, they insisted they are not in the position of sharing their financial information, but the president was amenable to signing a personal payment guarantee. He also provided his credit card information, which checked out. At the same time, I was getting some pressure from our sales team to move this credit approval along ASAP and so I didn’t really think too much about the refusal of the financials, as many customers often refuse that request. After giving my credit seal of approval, I moved on to the next application. 

Then about three weeks later, I happen to be across town on an errand and saw that unusual looking company name on a building near me. Being a little surprised, I went over and walked in to formally introduce myself. This is not so out of the ordinary since I like to meet our customers face-to-face.  

Upon entering, I saw behind the receptionist a sign with the unusual company name and also one of the trade reference names which had been provided. I asked the receptionist about the relationship between the two companies and was told that the trade reference name is a company owned by the president’s wife. Upon hearing that, I felt a little duped since the reference provided to me was not actually a third-party objective one. 

I walked out and called our sales director to let him know that we may have a problem. The order was begun as soon as I gave the approval and is currently about two weeks from being shipped. Although I feel that we should hold this order and get this trade reference issue clarified, my sales director feels we need to ship out as planned. This is really going against every credit risk management bone in my body and not sure what to do. 

Signed: Uncovered a Bogus Trade Reference

Dear Uncovered,

Allow me to be candid here because my first response is that your sales director has taken the wrong perspective. Instead of supporting you in your efforts to have uncovered a possible credit and payment issue, he is more concerned about getting the product out the door. 

I’m not sure what your normal chain of command is at your company but at this point, I think you need help. Can you go to your controller or CFO? Is your company small enough so that you have access to your president? My feeling is that before you ship out anything to this new customer, a frank discussion of why he used his wife’s company as a trade reference, presuming that he knew full well that it wasn’t a very objective one, is imperative. 

Let’s say that another trade reference is provided and it is completely legitimate, would you still offer a $50K credit limit? Would you insist on financial statements? I feel that a trust has been broken (or at least bent) and you may have to renegotiate a whole slew of new credit terms and conditions. 

There’s a lot in this situation to unravel and my hope is that before you ship the current order out, you get to the bottom of everything and make sure any future credit decision is completely supported.

I hope the above is helpful. Please let me know what happens. 


Dear Crabby is a credit and collection advice column by Nancy Seiverd President CMI Credit Mediators Inc. Your thoughts and comments ( are most welcome!

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