Saturday, December 13, 2008

#60 Implication of Internal Control- Impact of Credit Crunch on New Customers

In the current environment, where credit crunch impacts are prevailing, there are increasing credit risks of the Company. With the eagerness to obtain new customers, the strict credit risk assessments ( of new customers) should not be compromised.

The entity ( that are directly and severely affected by the credit crunch) should evaluate creditworthiness of new customers cautiously. Complete information needed to be obtained, for instance:
- Financial results of the Company
- Inquiries with market peers/ industrial person
- Shareholders' fund of the Company
- Reasons for purchasing from the entity

The entity can discuss with the new customer on the reason to purchase from them, as the supplies customer might have been discontinued from other supplies, due to credit risk concern.

Hence, a complete understanding and proper approval process need to be undertaken to prevent doubtful debt issue.

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