Introducing Bectran Intelligence Lab — AI tools for credit, risk, and collections.
Explore the toolkit →%20copy%201.svg)
Bectran Product Team
I
January 26, 2026
9 minutes to read
Credit management involves facilitating trade, but an equally critical skill is knowing when to stop it. The decision to revoke credit terms and switch a customer to Cash on Delivery (COD) signals a breakdown in the financial relationship and often creates tension with sales teams, who fear losing the account entirely. However, preserving working capital and minimizing bad-debt exposure require decisive action when warning signs appear.
While every credit department hopes to nurture customers back to health, there is a distinct point of no return. This guide explores the specific indicators that suggest a customer is no longer a credit risk worth taking.
Moving a customer to COD is the culmination of missed promises, ignored communications, and deteriorating financial metrics. The challenge for Credit Managers is having the confidence and data to enforce the decision before the exposure becomes unrecoverable.
Many teams delay this step because they lack a clear framework for pulling the plug. They operate in a gray area of extended grace periods and hopeful thinking, often until the debt becomes so old that collection agencies or legal teams must get involved. Establishing clear internal protocols for this transition protects the company and removes the emotion from what should be a calculated business decision.
Specific scenarios require removing credit terms. These breaking points in the creditor-customer relationship share common patterns.
One of the most frustrating indicators of default risk is the sudden cessation of communication. When a customer stops responding to routine inquiries, it often indicates they are avoiding the conversation because they do not have the funds to pay. Silence is a loud warning signal. Credit teams report scenarios in which customers ignore calls and emails until legal threats are issued. Average collection days stretch to 100+ days. At this point, reverting to COD becomes the only viable option. Credit terms rely on trust and communication. When those vanish, terms must follow.
Credit managers face situations in which the effort required to collect small amounts is disproportionate to the risk of new orders. If a customer struggles to clear a minor balance, allowing them to accumulate significant new debt is a lapse in risk management. Teams describe stark imbalances: struggling to collect $2,000 while $60,000 in open orders await shipment. Allowing large new orders to ship when the customer cannot pay a small existing balance is a gamble the business should not take. Revoking credit here serves as a protective barrier against much larger losses.
Sometimes the issue is not behavioral but purely structural. When a customer's liquidity dries up, no amount of negotiation will produce payment. Recognizing the difference between a slow payer and a broke payer is essential. Credit teams identify deep cash flow problems through business reports and external data. When the data confirms insolvency, the best course of action is clear: clear the existing AR, then switch to COD or close the account to prevent future exposure.
There are customers who pay, but never on time. They treat net terms as a suggestion rather than a contract. While they may eventually pay, the administrative burden of chasing every invoice reduces the account's profitability. Teams report that customers are paying invoices that are literally years overdue (2+ years past due). When payments arrive years late, the cost of capital and inflation have already eroded the value of that revenue. Revoking the credit limit stops the cycle of effectively financing the customer's business for free.
If the signs are clear, why do credit teams often hesitate to switch customers to COD? The delay usually stems from a mix of systemic limitations and organizational pressure.
Sales teams are incentivized to close deals and ship products. A credit hold or a switch to COD is often viewed as a deal killer. Credit Managers, wanting to be partners rather than blockers, may extend terms longer than the data justifies to appease internal stakeholders. This misalignment of goals (revenue vs. risk) creates a hesitation gap where bad debt accumulates.
In many organizations, the data needed to make a decision is scattered. The collector knows the customer is not returning calls (qualitative data). The cash application team sees the partial payments (transactional data). The credit analyst sees the external credit report (third-party data). Without a unified view, it takes weeks to assemble the full picture that proves the customer is insolvent. By the time the picture is clear, more product has shipped.
There is a psychological barrier to cutting off a long-standing customer. Teams often believe that if they just ship one more order, it will generate the revenue needed to pay off the old balance. This logic rarely holds up. Distressed customers often prioritize the vendors who shout the loudest or cut them off first. Continuing to ship usually just increases the final write-off amount.
If credit reviews are manual and periodic (e.g., annual or quarterly), a customer's financial health can deteriorate significantly between reviews. A customer who was safe in January might be insolvent by March, but if the next review is not until June, the credit line remains open during the most dangerous period.
Switching a customer to COD should be a process, not an emotional reaction. Implementing a structured framework helps the credit team defend their decision to the customer and the sales department.
Before revoking credit, the customer should receive a formal warning. This is not a collection call. It is a credit maintenance call.
The language you use in these warning communications matters. Generic dunning emails often get ignored or trigger defensive responses. Before sending warning notices, consider using Dunning Doctor to optimize your message. The tool rewrites collection emails with language proven to deliver 3X higher response rates, helping you drive customer engagement before the situation escalates to a credit hold.
If the behavior continues or the payment plan is missed, the account goes on credit hold. This is the testing ground for COD.
When the data confirms that the risk outweighs the reward (such as when $60k in orders is pending against the struggle to collect $2k), it is time to pull the plug.
One effective method for deciding when to switch to COD is the Exposure Ratio.
This removes the subjectivity. The math dictates the terms.
Moving a customer to COD is often framed as a negative event, but strategically, it is a protective measure that benefits the wider business.
Every dollar stuck in overdue AR is a dollar the company cannot use for inventory, payroll, or investment. Switching chronic slow-payers to COD stops the bleeding. It converts a portion of the revenue stream into cash immediately, improving the company's overall liquidity.
Collection teams have finite time. Chasing a customer who ignores emails and pays 100+ days late is a massive drain on productivity. By moving these accounts to COD, the collection team can focus its energy on recoverable accounts where its intervention actually makes a difference.
Slow payment is the leading indicator of bankruptcy. By the time a customer files for Chapter 11, unsecured creditors often get pennies on the dollar. Moving to COD early ensures that your company recovers its goods or is paid before the formal collapse. It effectively prioritizes your company over other vendors who are still extending credit.
Paradoxically, COD can save the customer relationship. It prevents them from digging a deeper hole that they can never climb out of. It forces them to order only what they can afford, which creates a smaller, more sustainable trading relationship rather than a large, toxic one that ends in a lawsuit.
The goal of the Credit Manager is to maximize sales within acceptable risk limits. When a customer consistently violates those limits, the terms must change. Switching to COD is the successful execution of risk management.
Customers ignoring calls, paying 100+ days late, or struggling with small balances while requesting large orders? Bectran's collections platform includes automated exposure ratio monitoring, credit hold workflows triggered by payment patterns, Promise-to-Pay tracking to identify broken commitments, and unified AR views that combine qualitative and quantitative risk signals—providing the data to confidently switch slow-payers to COD. Improve your warning communications with Dunning Doctor to get higher response rates before escalating to holds. See how collections intelligence works.
300+ tools for efficiency and risk management
.svg)
.svg)
