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Bectran Product Team
I
February 2, 2026
7 minutes to read
Credit managers often face a frustrating scenario. You complete a thorough financial review, verify trade references, analyze the D&B report, and set a conservative credit limit. The risk assessment is sound. The customer appears stable. Yet, ninety days later, the account is delinquent, and the collector is unable to secure payment. When this happens, the immediate reaction is often to question the initial credit decision. Did we miss a red flag? Was the limit too high? But in many cases, the credit decision was correct. The failure did not happen during the risk assessment. It happened during the handoff.
Bad debt is not always the result of a customer's inability to pay. Frequently, it results from internal process failures that occur after the credit team approves the account but before the cash reaches the bank. These operational gaps (broken handoffs, data entry errors, and lost context) create inherited risk for the Accounts Receivable (AR) team.
Credit risk management is often viewed as a gatekeeping function. Once the gate is opened and the account is set up, the credit team's influence typically ends until a review is triggered. However, the logic used to approve that account rarely travels downstream to the teams responsible for billing, sales, and collections.
This loss of context creates a specific type of risk that is unrelated to the customer's balance sheet. It stems from the difference between what was approved and what was executed in the ERP.
A credit decision is a snapshot in time. You approve a customer based on specific conditions (perhaps you granted a $50,000 limit with Net 30 terms because their liquidity is tight). You documented this rationale in the credit file.
However, once approval leaves the credit department, it becomes static data fields in an ERP system. The nuance is lost. If the Master Data team or a sales representative inputs the terms as Standard (which might be Net 60 in your system) or fails to link the correct billing address, the risk profile immediately changes. The customer is now operating under terms you did not approve, creating exposure that the credit team is unaware of until the invoice ages out.
If the credit decision was sound, why does the debt turn bad? The problem usually lies in the mechanics of the Order-to-Cash cycle.
The most common failure point is the translation of the credit approval into master data. Credit managers often specify strict conditions for marginal accounts, such as Personal Guarantee required or Invoices must be emailed to AP manager directly.
If the ERP setup relies on manual entry, these conditions are easily missed. A clerk might set up the account using a generic template. The invoice goes out without the required attention line, or the system fails to flag that a guarantee is on file. When the invoice goes unpaid, the dispute is not about the product. It is about administrative errors that give the customer a valid reason to delay payment.
Sales teams are driven to close deals. In some cases, a representative may verbally agree to extended terms or a right of return that conflicts with the official credit policy. Because these agreements live in email threads or verbal conversations, they never make it into the ERP. The credit team assesses risk based on Net 30 terms. The customer buys believing they have Net 90. When the collector calls at day 35, the customer refuses to pay, citing the sales rep's promise. The credit decision was sound based on the available data, but the transaction's reality made the debt uncollectible in the short term.
Customers frequently withhold payment on valid invoices due to minor billing errors. Incorrect purchase order numbers, incorrect unit prices, or missing proof of delivery documents are common causes of non-payment. While these seem like administrative nuisances, they are credit risks. Every day an invoice sits in dispute, the likelihood of collection drops. If a customer is already financially fragile (the very reason you spent time on the credit review), a billing delay can push the invoice payment window beyond their liquidity limits. You approved them for 30 days of risk. A billing error might force you to carry 90 days of risk.
To prevent sound credit decisions from turning into bad debt, credit leaders must look beyond the initial approval. The goal is to ensure the integrity of the decision remains intact throughout the invoice lifecycle.
Many teams require dual approval for credit limits but not for master data entry. This is a control gap.
Implement a setup verification step. Before the first order is released, a member of the credit or AR team should verify that the customer master file matches the credit approval memo. Check that the terms, credit limit, and billing contact match exactly what was authorized. This simple audit prevents most administrative disputes.
Treat the first invoice sent to a new customer as a test case. Rather than waiting until it is past due, the collections team should make a courtesy contact shortly after the invoice is generated.
The objective is not to ask for payment, but to verify receipt and accuracy. Ask the customer:
This confirms that the operational process worked. If there is a discrepancy, you catch it at day 5, not day 45. This preserves the validity of the original credit decision.
Risk does not stop at the credit limit. It evolves with every order and invoice. The credit team needs visibility into operational performance.
If a customer typically pays on time but suddenly stops due to pricing disputes, the credit manager needs to know. This is not just a collection issue. It indicates that the company's exposure to that customer is increasing purely due to internal errors. The credit score has not changed, but the risk has. Regular reviews of dispute reason codes can help credit managers adjust risk ratings based on operational friction, not just financial health.
Addressing these upstream gaps protects revenue. When credit decisions are accurately reflected in master data and billing, the AR team spends less time fixing errors and more time managing genuine credit risk.
Reducing these preventable disputes improves cash flow forecasting. When you know an invoice will not be rejected for a missing PO, you can rely on the cash coming in on time. It also protects the customer relationship. Nothing erodes trust faster than a collections call on an invoice that the customer has already flagged as incorrect.
A perfect credit decision is wasted if the downstream process fails to support it. By acknowledging that risk management extends into master data setup and billing accuracy, Credit Managers can close the gap between approval and payment.
Bad debt often starts long before the collector makes the first call. It starts when the context of the credit decision is left behind.
Credit approved Net 30, but ERP setup uses Net 60? Sales verbally promised Net 90? Bectran's credit platform includes master data validation that enforces credit approval terms in the ERP, automated setup verification workflows that flag discrepancies between credit memos and customer master files, first invoice tracking with courtesy contact reminders at day 5, dispute reason code analytics to identify operational friction vs. genuine credit risk, and unified AR views that show credit decisions alongside billing and collections performance—ensuring sound credit decisions do not turn into bad debt due to downstream execution failures. See how credit operations work.
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