What is the purpose of placing a 'hold' on customer accounts?

Placing a 'hold' on customer accounts serves the primary purpose of temporarily pausing further credit sales. This action is typically taken when there are concerns about the customer's ability to pay, such as overdue payments, exceeded credit limits, or other risk factors that may impact their creditworthiness. By implementing a hold, the accounts receivable team can manage credit risk and ensure the business does not extend additional credit to a customer who may not be in a position to fulfill their financial obligations.

This measure allows the company to assess the situation, communicate with the customer regarding their account status, and take appropriate actions to mitigate potential losses while maintaining a healthy cash flow. Therefore, placing a hold is a proactive strategy in credit management.