Any profitable business relationships require a balance resulting in respect of mutual commitments.
If the delivery of an equipment or a service at a date and a given price 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?).
This discipline is an integral part of credit management and can be called "customer risk management".
Customer risk management is the art of adapting the conditions of a commercial relationship between a seller and a buyer based on the assessment of customer's ability to honor its commitments and pay its invoices.
If not done, 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.
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.
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.
This analysis also makes it possible to more precisely assess the commercial potential with each of its prospects and customers. This approach, initiating the sales process, influences the whole life of customer relation.
If the delivery of an equipment or a service at a date and a given price 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?).
This discipline is an integral part of credit management and can be called "customer risk management".
Customer risk management is the art of adapting the conditions of a commercial relationship between a seller and a buyer based on the assessment of customer's ability to honor its commitments and pay its invoices.Assess the creditworthiness of your customers
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..).The next step is to set a credit limit and business conditions (terms and means of payment, contractual clauses, etc.).
- You need first to get informations about your clients
- Then analyse the profit and loss account and the balance sheet of your clients. Financial analysis is also relevant in determining resilience to a crisis. The current health context due to the Covid and its unprecedented impact on the economic and financial world is a glaring example.
- Assess the level of the Tangible Net Worth of the company which can be key indicator to set the credit limit.
- Then compute these data in a scoring tool like the credit notation in order to have a full and deep understanding of risks and business stakes.
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.
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