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 clients
Then analyse the profit and loss account and the balance sheet of your clients.
Assess the level of the Tangible Net Worth of the company which is a key indicator to set the credit limit.
Finally evaluate clients solvency with the credit notation

The 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

Tools download:

Credit risk profile

Credit risk synthesis allowing to see all main topics of credit analysis in a snapshot. It helps to share credit information between people involved wihtout struggling with emails. All information needed is in a simple sheet.

Download

Information request form

Form template in french including all needed information to collect before opening a customer account.

Download

Information request letter

Template letter for a request of legal and financial information to a potential new customer.

Download

Information request form

Form template including all needed information to collect before opening a customer account.

Download

Information request letter

Template letter to be sent to another supplier of your client requesting what is his payment behavior with him.

Download

P&L financial ratios

This tool calculates the profitability ratios based on the Profit and Loss account.

Download

Credit notation

Credit notation tool including 15 criteria to assess creditworthiness of your customers.

The tool is using three kind of criteria:

General information (company legal form, age of company, payment behavior...etc),
Profit and loss account information (sales, sales history, EBIT, net result),
Balance sheet information (equity, working capital, cash...etc.).

Download