The credit analysis
|The credit management is divided into two parts. First one is preventive about customer assessment and securing the payments, the second part is curative relative to cash collection and performance management (DSO, working capital ... etc.).
The second part is dependent on the first, which is fundamental for the success of the relationship seller / buyer from a financial point of view.
It is indeed during the trade negotiations that will be defined payment terms, any associated guarantees and contractual clauses.
The basis of preventing credit risk is to achieve a good credit analysis. This will highlight what are the risks in front of security tools or risk mitigation may be proposed.
What is the credit analysis?The credit analysis is an overall assessment of the current business relationship or the one which will come up with a client. It takes into account several additional elements.
About the buyer:
About the environment of the buyer:
Regarding the advisability of sale for the seller:
The credit analysis is not only financial analysis. It goes well beyond, it takes into account the entire business environment to determine the risk for the seller to extend credit to the buyer.The credit analyst compiles this information and synthesize to get a "snapshot" of risks (weaknesses) and reinforcing elements (strengths) of the business opportunity.
He then offers solutions to make the risk acceptable in accordance with the risk management strategy of the company.
The role of the credit analyst in the company is to be a source of proposals to reduce the risk and allow to take the sales opportunity. Doing so he facilitates trade and becomes an ally of business in their search for revenue.
Purpose of credit analysisUltimately, the credit analysis leads to the set up of payment terms and payment guarantees, of credit limit and of the inclusion in the sales contract clauses protecting the seller.
Anticipation and intervention early in the sales process of the credit analyst is a key success factor. Then, he can identify risks and counter them with the appropriate tool.
Locate the credit analyst in the companyDepending on the size of the company, the credit analysis is performed by a qualified analyst, Credit Manager or a person trained belonging to the financial department (Chief Financial Officer, Accounting ... etc..). He is responsible for credit granted to customers and must be attached to the Finance Department.
In large companies, he defers to the Credit Manager who negotiates with trade customers and sales managers and then ratify decisions based on credit analyzes performed.
Next: Get information about your customers.
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.
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