Our last post evoked a lot of discussion.

https://faoblog.com/processes-ar-collections-follow-credit-limit/

The first one is from Deepak Joshi:

Foremost thing to be seen before going into any final decision -should be the type of the project -whether it is the long one or short one for which the limit is to be required , thereafter,availability time of the basic raw material which is needed to complete the either production process or full project. Though not many but all generally take the sales turnover for fixing of credit limit that to on the past performance ,which in my personal opion is not a very helpful in many stages . Apart from this while fixing the cr.limit the earning capcity/income alongwith clear orders in hand must be judge.from DEEPAK JOSHI
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By DEEPAK JOSHI

Thank you Deepak.

The 2nd one is from Jim Freeman

Good god, haven’t we had enough of ‘models?’What we need are small, definable and traceable ‘experiments’ upon which policy can be established. This would go a long way to prevent system-wide unexpected consequences and their destabilizing influence on broad-based systems, to say nothing of the public at large. Credit-limits are a sterling example of just this–encouraging (and advertising) easy credit and then punishing over-users by usurious increases to 30% in interest percentages.Before credit-cards, bankers (when there actually were bankers, instead of gamblers in the market) established lines of credit for customers, both large and small. They did it eyeball-to-eyeball, across a desk. Current economic thought encourages ‘models’ in place of knowing the customer–how can you possibly ‘know’ credit-card customers? I understand that. Yet it seems (and has proven itself to be) very dangerous to inflate personal debt to the degree that we have achieved today.

‘Modeling’ credit limits sounds to me like another vehicle for the banks to have it both ways (wider credit and fewer losses), neither of which are necessarily in the interest of the customer.
By Jim Freeman

Thanks Jim for your inputs too. You are correct, we actually need  small, definable and traceable ‘experiments’ upon which policy can be established.

We had shared this site just as an example so that our readers can search and find the right answers for themselves.

Appreciate your thought.

This one is from Bharathi

We share couple of groups in linkedin and thats where I saw your blog and the recent blog post about how to calculate a credit score. While I agree on the validity of the method you follow, there are also few points I would propose to you and we can progress if that makes any sense to you. As others in the financial industry, this method also follows pure transaction/numerical oriented approach. In financial accounting practise, there are initiatives to consider the whole business organization so the viability of the business would have a factor in calculating the credit score of a particular entity. This qualitiatve mixing with quantitative numericals would be a credible tool. I am pretty sure that you may be familiar of such quantitative modeling(System dynamics modeling) and its features in mathematical modeling areas. If you think, we can work together on this and try to apply SD in your work. please let me know. All the best.

Thanks Bharthi, the focus of our blog is to help people in the accounting back office. We do not support or promote any specific method.