Credit professionals are always looking for ways to reduce credit risk. When the perceived credit risk of open account terms is particularly high, we look for alternatives, including payment in advance. Instead, buyers might ask to pay for their orders using a credit card, meaning that--in theory--the creditor company receives payment before shipment takes place.

In reality, credit cards can reduce--but do not eliminate--credit risk. Credit card sales are inherently risky. Even after the creditor is paid by the credit card company, if the buyer claims they did not authorize the charge or that the balance due is in dispute, then the credit card company may deduct the "disputed" amount directly from the creditor company's bank account. The credit card company is not obligated to verify whether or not the dispute is legitimate.

• Set limits on the amount they will sell to customers on credit card terms. Develop a credit risk profile and evaluate each company seeking to purchase using a credit card. Then establish a maximum amount the company will sell on credit card terms given the risks inherent in this process.

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• Use extra caution with any credit card transactions conducted by telephone, fax, or mail. They are inherently risky. Fortunately, most business-to-business credit card transactions are conducted in person.

• Educate the sales department, and inform senior management about the risks associated with credit card purchases--before they are surprised to learn that the credit department has refused to accept a credit card deal.

• Limit credit card risk by asking the cardholder to sign an agreement stating that they will not report any dispute on any credit card charge to the credit card company until they have notified you (the seller) of the problem and given you the chance to fix it. This does not prevent problems, but it may provide the seller with a certain amount of leverage with certain customers in certain circumstances.

• Try not to accept personal charges for corporate purchases. In many instances, individuals trying to purchase products or services for their business using a personal credit card are doing so because the company is in serious trouble. Therefore, accepting a personal credit card will result in a higher incidence of problems for the seller.