Order-to-cash controls: at which point in the sales process is a customer's credit typically checked to prevent uncollectible receivables and reduce risk?

Introduction / Context:
Credit checks are a critical internal control in the order-to-cash cycle. Verifying a customer’s credit standing before committing inventory or promising shipment reduces bad debt exposure and avoids costly returns or collection efforts.

Given Data / Assumptions:

• Orders flow from inquiry/quotation → order entry → fulfillment → invoicing.
• Credit policy defines limits and terms for each customer account.
• The goal is to block or review risky orders early, before allocation and shipment.

Concept / Approach:
The practical and most common control point is the order entry step. When the salesperson or CSR confirms items, prices, and delivery, the system checks the customer’s current balance, overdue status, and credit limit. If the order exceeds limits or the account is on hold, the order is halted or routed for approval. While credit can also be reviewed at later stages, the cost of stopping an order rises the further it moves downstream.

Step-by-Step Solution:

Verification / Alternative check:
ERP systems (e.g., SAP, Oracle) implement automatic credit checks at order entry using rules for limits, dunning levels, and risk categories, corroborating this placement.

Why Other Options Are Wrong:

• Quotation: non-binding; checking here may be premature.
• Order processing (generic): ambiguous and often occurs after entry; too late.
• Any of the above: overbroad; the standard control point is order entry.

Common Pitfalls:
Allowing manual overrides without approval; failing to re-check at shipment if terms or exposure changed significantly.

Final Answer:
order entry system