Assess your customers
All profitable business relationships require a balance resulting in respect of mutual commitments.
If delivery of equipment or performing a service at a date and a price given is under the responsibility of the supplier, the invoices payment made at the contractual due dates belongs to the buyer.
It is therefore necessary to ensure ongoing capacity of your (new or regular) customers to honour their commitments either from a business ethics perspective or from a financial perspective (will your customer be able to pay your invoices ?).
Otherwise, the energy and investment that you employ to develop the business relationship may be lost and you could lose even more if your bills are not paid.
Assess the creditworthiness of its customers is essential before the beginning of the commercial relationship and throughout it.
This allows to deploy your marketing and commercial efforts with "good" prospects and then work serenely thereafter without risking unpaid invoices which is the cause of 25% of business failures!
Get paid for your sales is essential! For this purpose, you must before anything else assess the solvency of your customers.
This analysis must be done before the trade negotiation or when opening the account. Anticipation is important because it helps to prevent payment problems.
Main steps to assess creditworthiness of customers
|This study, called credit analysis, takes into account a range of information related to the buyer, its environment and commercial stakes for your company. This analysis leads to a specific strategy with each customer and will have some effects on trade negotiations and commercial terms (payment terms, warranties, contract ... etc..).
You need first to get informations about your clientsThe next step is to set a limit of credit and business conditions (delay and means of payment ... etc).
The evaluation of the creditworthiness of its export customers is different because it is often difficult to obtain detailed financial information. Furthermore, the analysis must be larger and take into account the political risk of the country's economic and foreign exchange risk.
Next: get information about your clients
The credit analysis
Get information about your clients
Analyze the Profit and Loss account
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This is a very instructive site for risk takers and risk managers.