6 Steps to Assess Creditworthiness of Potential Customers
In order to protect your business from late payments or non-payments, make sure you use the right tools to check the creditworthiness of potential customers before you extend credit. Here are some useful ways to determine the creditworthiness of potential customers.
1. Run a Credit Report – A great way to determine the creditworthiness of a customer is to run a credit report. Coface business credit reports offer you a comprehensive and flexible tool for your credit risk management. The credit reports provide: up-to-date company information, payment history, details about the management, key financial data and credit scores. These credit reports will illustrate whether a business has the ability to pay invoices.
2. Check References – Trade references are important when dealing with suppliers and other businesses. As you’re likely aware, these are sources that can describe past payment experiences between a business and a supplier (or other credit users). Contact the potential customer’s trade references to check :
- Time period the parties have been working together;
- Check the potential customer’s account and its past payment record;
- If you notice a history of late payments, consider this to be a red flag.
3. Assess Company’s Financial History with Big Data - With big data, companies can access valuable information on their potential customers. Trade credit insurance is a prime example of how companies can easily obtain more customer data to improve credit processes. Using Coface, the credit insights that we provide to our clients comes from various sources. With the help of the financial information that we provide, we help companies to access deeper insights on the strengths and weaknesses of their potential customers.
4. Perform an In-Depth Analysis of the Latest Filed Accounts – When a company wishes to do business with you, make sure it provides all the financial information that will help in determining their ability to pay for your goods and/or services. To evaluate the financial health of the company it is important for you to learn about the company’s financial performance by reviewing the financial statements. Don’t forget to review company’s cash flow statement which indicates the company’s current operating results.
5. Understand Companies’ Business Internal and External Environments – Check whether the company is connected or associated with any failed companies (including overseas businesses). Also keep in mind checking any parent and/or sister companies. When assessing creditworthiness of an existing or potential customer, it is also important to understand external factors which may influence business activity such as economic or political instability, sanctions or embargo, local business practices, all these factors can negatively affect a potential customer’s cash flow and make extending trade credit an increased risk.
6.Use an Information Provider - It might be difficult to gather the right data. Especially in some countries, access to business data such as financial statement remains difficult. Using the scores and ratings form a business information can save your time and help you to quickly determine the right amount of credit to extend, reduce your exposure to bad debt, anticipate slow or late payments.
Coface specializes in providing business and credit information worldwide, allowing you to make informed decisions about trading on credit terms. We offer a range of business information products, from credit reports to recommendations on risk taking — all in one convenient package. We rely on a powerful global information gathering an analysis network, enhanced by members of the Coface Partner network, who feed our databases of 200 million companies in real time. For more information on our products, contact us today.