What are tolerance levels in relation to credit control & chasing debt?

geek84

Hi folks

I work as a credit controller and one of the tasks involved is making sure that customers don't go over their credit limits.

As part of my job responsibilities, I also need to check the 'Tolerance Levels' for customers. I don't quite understand how this works, so can someone be kind enough to explain this?

By the way, in case you are wondering, the credit control manager is off sick & I am the only credit controller for the company.

Thanks in advance for your responses.

ademoore

Hi,
No one has answered you, so I'll take a stab at it - I'm not a credit controller, however thinking about the meaning of the word "tolerance" I would guess it's how close cusomters are to their credit limits. I.e. the closer they are, the greater the need to chase outstanding monies and ensure older debts are paid - companies put a credit limit on customers to manage their risk to that customer, and so this sort of thing would need monitoring in order to manage that risk.

You could probably calculate it as a percentage (since differing customers will likely have different credit levels) - amount of debt as a percentage of credit limit - the higher that percentage, the greater the need to chase.

That would be my interpretation from what you have asked.

Rinske

Do you put customers on hold/ stop if they haven't paid their invoices in time?

And what happens if they reach their credit limits?
I'm not a credit controller either, but we have the policy that if a customer is over their credit limit, the order blocks in the system. As long as the customer has a good credit history and the order won't take them more then 10% over their limit, we will let the order go through and our credit controller will release the order.

Could it be something similar?

geek84

Good Morning Folks

Many thanks for your replies Ademore & Rinske.

I've got the problem sorted now.

Thank you.

blobbyh

Please share the answer geek84. Forum etiquette dictates that you can't just take everything and give nothing back.

geek84

Hi folks

Tolerance Levels, as far as our company works them is as follows, Tolerance Levels relate to the amount of a credit purchases that an customer can do with us, without having to pay for earlier dated invoices.

For example, since we are in the Month of August, we would require some of the smaller customers to clear their debt up to at least mid June before making more credit purchases. For 'larger' customers, we would let them trade without having to pay for all of the old debt i.e. prior July - i.e. they only have to pay a % of it before making future credit purchases.