What should I ask about an industrial distributor’s customers who buy on account?

Selling on account means the distributor lends to its customers, so the quality of those customers matters as much as the sales. Begin with the aged receivables report. Look at how much sits in the oldest columns and whether the same names keep reappearing. A large balance from one contractor that has been slow for a long time is a different risk from many small late invoices.

Ask who approves new accounts and who sets limits. A distributor that gives credit freely to win sales may carry more risk than the statements show. Ask what the seller does when an account goes late: calls, holds shipments, or quietly keeps shipping. Ask about past write-offs and whether any customer has settled for less than it owed.

Check whether a few accounts make up most of the credit sales. If one fails, the gap is large. Trace several recent invoices to payments in the bank records, and ask your accountant what the receivables should look like at closing. Ask too whether any customer disputes invoices, takes unauthorized deductions or pays only after repeated reminders, since those habits rarely appear in a summary report.

Key takeaways

• Get an aged receivables report and look for repeat names in the oldest columns.
• Ask who sets credit limits and what happens when an account goes late.
• Trace sample invoices to bank deposits instead of trusting the balance alone.