Contents
- 1 Modern Society Rests Largely On Credit
- 2 Importance Of Credit Management
- 2.1 Example of commercial credit letters
- 2.1.1 1) Letters Requesting Commercial Credit
- 2.1.2 2) Letters Responding To A Request For Commercial Credit
- 2.1.3 3) Letters Requesting Creditworthiness Information From Credit References Given By Commercial Credit Applicants
- 2.1.4 4) Letters Written By Credit References In Response To Requests For Creditworthiness Information
- 2.1.5 5) Letters Accepting Or Turning Down Applications For Commercial Credit
- 2.1 Example of commercial credit letters
Modern Society Rests Largely On Credit
Since few business transactions are settled in cash at the time, modern society rests largely on credit or on trust and confidence. Credit is a promise of future payment in money or in kind given in exchange for present money, goods, or services. Almost all businesses offer commercial credit or consumer credit privileges to their customers because it increases their sales. This wide use of credit helps to maintain a balance between production, distribution, and consumption of goods. For that reason, five types of credit limit letter to customer in this chapter covering the following topics :
1) Letters Requesting Commercial Credit
2) Letters Responding To A Request For Commercial Credit
3) Letters Requesting Creditworthiness Information From Credit References Given By Commercial Credit Applicants
4) Letters Written By Credit References In Response To Requests For Creditworthiness Information
5) Letters Accepting Or Turning Down Applications For Commercial Credit
Importance Of Credit Management
Most commercial sales are made on credit, allowing payment to be delayed at least 30 days. When a business extends credit to its customers, it realizes that some customers will be unable or unwilling to pay for their credit purchases. Credit managers must therefore decide which companies will be allowed to buy on credit and what maximum amount of credit purchases will be allowed each customer.
Today, credit management is so important to the financial health of companies that in almost every country several professional information services are in business to help rate customers for creditworthiness. For example, the Dun & Bradstreet Corporation, with headquarters in the United States, offers extensive business and credit information services in the United States as well as in many countries around the globe that enables a company to check on a business customer’s credit rating and help them steer clear of bad debts. In addition, credit information can often also be obtained from regional or local credit-reporting agencies.
Many large retailers, retail chains, and department stores conduct their own consumer credit departments where consumers can apply for a charge account by filling out an application form. These retailers believe there is a great deal of store loyalty generated through consumer credit services. Consumers also show up more regularly where they have credit accounts and tend to spend more than cash customers. Today, hundreds of millions of consumers rely on credit because it allows them to buy what they want, when they want it, and to pay for it from future earnings. Retailers sell to consumers on credit and buy on credit from their suppliers who, in return, order on credit from the companies who manufacture the merchandise.
Commercial credit letters should be written with care and should also be short and to the point.
Example of commercial credit letters
1) Letters Requesting Commercial Credit
Your Name
Company Name
Street Address
City, ST ZIP Code
Date
Recipient Name
Title
Organization Name
Street Address
City, ST ZIP Code
Dear Recipient Name:
For the past six months, we have been purchasing household appliances from your company on a C.O.D. basis. However, we would now like to open a line of credit. Please, let us know your usual credit terms and what credit references and other business information
you require to open such an account.
We hope your company will be willing to comply with our request.
Sincerely,
Your Name
2) Letters Responding To A Request For Commercial Credit
Your Name
Company Name
Street Address
City, ST ZIP Code
Date
Recipient Name
Title
Organization Name
Street Address
City, ST ZIP Code
Dear Recipient Name:
Thank you very much for your purchase order #CC-373. So that we may extend our normal credit terms of 30 days, please provide us with the following information:
Your company’s most recent financial statements
Names of three suppliers with whom your company is presently doing business
Name of your bank
Thank you for your cooperation.
Sincerely,
Your Name
3) Letters Requesting Creditworthiness Information From Credit References Given By Commercial Credit Applicants
Your Name
Company Name
Street Address
City, ST ZIP Code
Date
Recipient Name
Title
Organization Name
Street Address
City, ST ZIP Code
Dear Recipient Name:
Mr. Colin Wilson, President of ABC Company, has asked us to extend credit to his company. He has given your name and company as a credit reference.
\We would like your opinion of ABC Company’s business reputation, promptness of payment, and financial responsibility. Of course, any information you furnish will be treated with the utmost confidence. If we can ever be of similar service to your company, please call on us.
Thank you very much for your cooperation.
Sincerely,
Your Name
4) Letters Written By Credit References In Response To Requests For Creditworthiness Information
Your Name
Company Name
Street Address
City, ST ZIP Code
Date
Recipient Name
Title
Organization Name
Street Address
City, ST ZIP Code
Dear Recipient Name:
We are happy to endorse the Allied Graphics Company with corporate headquarters at Hooverville, Florida as a good credit risk. This company is well known to us since we have had business dealings with them during the past twelve years. As far as we can ascertain the company appears to be in good financial condition and their record of payment has been completely satisfactory. Therefore, you should have no hesitancy about extending credit to the company up to the amount of $15,000 a month.
Sincerely,
Your Name
5) Letters Accepting Or Turning Down Applications For Commercial Credit
Your Name
Company Name
Street Address
City, ST ZIP Code
Date
Recipient Name
Title
Organization Name
Street Address
City, ST ZIP Code
Dear Recipient Name:
We are very pleased to welcome you as a new customer with open account terms to a credit limit of $12,500. We have shipped your order immediately and hope this will be the beginning of a long and prosperous relationship with your company.
If at any time, you wish to raise this above-mentioned credit line, we will of course be pleased to consider your company’s financial statements once again.
Sincerely,
Your Name
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