All 22 Credit Control questions
More in Credit Control
What is a credit limit and how is it set? What is a credit application and why is it used? What is the difference between credit control and collections? What are common credit terms and what do they mean? How do you assess a customer's creditworthiness? What is a credit hold and when is it applied? How do credit terms influence sales and cash flow? What is the order-to-cash cycle and where does credit control fit? How is credit exposure monitored on an ongoing basis? How should credit limits be reviewed and adjusted over time?
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Accounts Payable & Receivable › Credit Control

What is the purpose of a credit check before accepting a new customer?

Beginner

Answer

A credit check assesses whether a prospective customer is likely to pay before you extend credit, so you can set an appropriate limit and terms—or require prepayment—rather than discovering non-payment after delivery. It's the first line of defense against bad debt in the order-to-cash process.
Real-world example A pre-sale credit check flags a shaky applicant, so the sale proceeds on prepayment instead of open account.

Common follow-ups: What can a credit check prevent? | What are the alternatives to open-account terms?

Collections & Bad Debts Aging Analysis Credit Control
All 22 Credit Control questions