Question

If a Credit Manager, responsible for the granting of credit to customers, never has a customer default, is he/she doing a good job??

Answer 1

If a credit manager, responsible for the granting of credit to customers, never has a customer default, it may seem like they are doing a good job. However, in reality, they may be losing business and profits by being over-cautious. A fair level of defaults are expected and accordingly accounted for in the normal course of business. The complete absence of default suggests that the credit appraisal may be too stringent, which may have lead to the rejection of several transactions with reasonable quantum of risk. The concerned Credit Manager may be asked to loosen their credit appraisal terms and conditions.