The Chart of Authority (CoA) belongs to the credit management policy and establish the level of authority of each person in the organization for setting up credit limits or payment conditions.The CoA has to be validated by the top management and must be consistent with the credit management procedures.
Applying the rules of the CoA allows to clarify responsibilities and to share information in order to prevent better the credit risk.
For example, if the set up of a credit limit of 300 K€ needs the approval of the CFO of the company, the credit analyst or credit manager has to present the case to the CFO and to discuss the credit assessment and the payment conditions proposed.
This internal discussion is essential to assess the quality of the credit analysis. The CFO may have another point of view and may challenge the commercial negotiation with the customer on payment terms.
The CoA helps to share information accross the company. It should be adapted to each company and validated by the top management.Download a chart of authority template and a credit management policy.
More information here.