Get information about your clients
First step prior to commercial negotiation, getting information about your clients is an need to:
- know who is your client: what is the history of the company, does he respect its commitments, is it solvent ?
- well orientate commercial negotiation. Knowing your client under different points of view (size, profitability, solvency, position on the market etc.) will be useful as much in your commercial approach as in the prevention of a potential payment default.
- find and offer solutions to insolvent clients to collaborate without risk of unpaid invoices: credit insurance, down payments, delegations of payment, bank guarantees…many solutions are available to secure an order coming from a risky client. Read Secure your receivable.
Focus your commercial efforts with healthy companies which have a good development potential. Such partnership will contribute to the success of your business while a client in financial difficulties risks to lead your business to take high financial risks. The first cause of businesses default is ... overdue and unpaid invoice from clients!
The analysis of solvency of a business is mainly based on these two types of information (financial / legal and behavior), each balancing the other one. For example, a business led by people of confidence will nevertheless be risked if its financial standing is bad. On the contrary, a business which has a good financial structure will be risked if its leaders use fallacious reasons to not pay their suppliers.
The economic context of the buyer's sector of activityThe situation of the sector of activity (eg building, steel, distribution, car ... etc.) of the analyzed company is also taken into account. It is a macro-economic information that indicates what is the market trend of the buyer. It therefore has an impact on the assessment of its solvency.
However, the situation the sector of activity should not prevail on the intrinsic situation of the buyer in his creditworthiness assessment. Some companies can be successful in sectors in crisis, and vice versa.
Credit insurers and robotic financial information providers tend to rely a lot on this criterion for one simple reason: it is easier to obtain quality information on the economic situation of a dozen of sectors than on each individual of millions of businesses of each country. This principle is fairer in countries where financial information on companies is little or not available.
Be sure to put into perspective the credit analyzes carried out by companies that do not have the same challenges and constraints as you and put them in perspective with other information!
How to get these information?Getting information is very different according to the country of the buyer. In France for example, every company has to publish every year its financial statements. Therefore, it is quite easy to find this information (see below). In Saudi Arabia, it is very difficult to get these data as financial statements are used only as an internal tool of management.
However, the best way to get information is to request it from your client himself! Meet him with this aim in view has numerous advantages:
- you are guaranteed to get fresh information. The situation of businesses changes very quickly!
- it is free and it is only consumer of a little of time!
- the exchange of information allows to establish a relation of confidence as well as the bases of a solid partnership. If your client refuses to transmit to you this information, try first to understand the reason of this refusal, then be careful before working with him and ensure that you can get guarantees of payment.
This approach depends of course on the particularities of your company's activity. A business that has relatively few customers in relation to its turnover will take time with all of them. Another who has tens of thousands of small customers will inevitably be in a more automated and less human approach.
Big Data and Artificial Intelligence in Financial InformationConcepts developed more and more every day, the use of big data and algorithms that allow us to draw indicators is a real plus in mass financial information.
The principle is to interpret very large amounts of data, for example payments versus due dates, to determine the payment behavior of each company.
This indicator could be included in the evaluation criteria of the company.
Many players are investing a lot in this way, which involves collecting the most exhaustive data possible with alghorithms making it possible to extract the substance.
This approach obviously has limits:
- Indeed, it depends on the quality and the exhaustivity of the data on which the analysis is carried out. However, these two conditions are rarely met, while the complexity of Big data makes it easy to hide these shortcomings to end-users.
- A "big data" truth is not necessarily consistent with your own experience with your customer (or the one you will have). It is your "small data" customer history that should take precedence simply because it is more accurate and relevant.
Main sources of financial information to perform credit analysis
|Financial information agencies: D&B, Creditsafe provide you with full automated financial reports. Quality and cost depend on each agency and localization of the buyer.||Credit insurances: AIG, Euler Hermes, Coface offer to their clients good quality information : financial statements / legal events and payment behavior coming from their own experience with these businesses.|
|Other suppliers of your client. Request references to your client in order to get from his own suppliers his payment behavior.||Bank of your client: it is completely possible to get information from the banks which works with your client. They are in the first "lodges" to see the treasury of firms. Be carefull because in some cases, the banker can hide some negative information because his interest is that you grant credit to his client in trouble to diminish its own risk.|
|Your client himself: he will give you his last balance sheet and very recent information on the evolution of his financial standing. His explanation will allow you to understand more easily some features transcribed in his financial statements.||Payment history you have with your client. Are you getting payment on time or with delay ? Read our tutorial on payment profiles.|
|Your own sales representative: they are in the best position to get information from the client and from the market. However, be careful and check the information received from them.||Business intelligence companies. You want a high quality financial report? Better to look at specialists who perform investigations done by analyst experts. Cristal credit and Inter Sud provides with this type of advanced services.|
Form template including all needed information to collect before opening a customer account.
Template letter to be sent to another supplier of your client requesting what is his payment behavior with him.
Form template in french including all needed information to collect before opening a customer account.
Template letter for a request of legal and financial information to a potential new customer.
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