No credit professional sets out to make a bad credit decision. Yet if you ask experienced credit managers to reflect on their careers, many will admit that some of their greatest lessons came from decisions they wish they could take back.
Experience isn’t gained simply by making good decisions. It’s earned by recognizing mistakes, understanding why they happened, and making sure they aren’t repeated. Here are five lessons many seasoned credit professionals have learned the hard way.
1. Approving Too Much Credit Too Quickly
A new customer lands a large order. The financial statements look promising, the sales team is excited, and everyone wants to move quickly. It’s tempting to approve a generous credit line without taking the time to fully verify the customer’s financial strength or payment history.
Sometimes the best credit decision isn’t “yes” or “no.” It’s approving a smaller credit line initially and increasing it as the customer demonstrates a positive payment pattern.
2. Ignoring the Early Warning Signs
Credit problems rarely appear overnight. More often, they develop gradually.
Payments begin arriving a little later than usual. Requests for extended terms become more frequent. Financial information is delayed or no longer provided. Customer communication becomes less responsive.
Individually, these changes may not seem significant. Collectively, they can signal that a customer’s financial condition is beginning to deteriorate. Experienced credit professionals learn that warning signs are valuable only if they act on them.
3. Allowing Sales Pressure to Influence the Decision
Every credit manager has experienced the following pressure to approve credit:
- “They’re one of our biggest customers.”
- “This order is too important to lose.”
- “We’ve always worked things out before.”
Sales and credit often view risk from different perspectives, and healthy discussion is part of every successful business. The challenge is making sure that business opportunities don’t overshadow sound credit judgment. When exceptions are made, they should be deliberate, well documented, and fully understood, not simply the result of pressure to close another sale.
4. Waiting Too Long to Reduce a Credit Limit
Many companies review credit limits when opening an account but don’t revisit them often enough afterward.
As customer circumstances change, credit limits should change as well. Waiting too long to reduce exposure can leave a company carrying far more risk than it originally intended. While lowering a credit limit is never an easy conversation, it is often far easier than explaining a significant bad debt after the fact.
5. Delaying Collection Action Because of the Relationship
Long-term customers often become trusted business partners. That history is valuable, but it can also make difficult collection conversations easier to postpone.
Many significant losses occur not because the customer couldn’t pay, but because the creditor waited too long to recognize that the situation had changed. Professional relationships should always be treated with respect, but they should never replace sound collection discipline.
Every credit professional has decisions they would handle differently if given another opportunity. Fortunately, mistakes don’t have to define a career. More often, they become the experiences that sharpen judgment, strengthen decision-making, and help us avoid even bigger mistakes in the future.
Sometimes our greatest professional successes begin with the lessons we learned from our biggest mistakes.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Nancy Seiverd, President
CMI Credit Mediators, Inc.
All Rights Reserved
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