What are the methods of assessing the creditworthiness?

• a bank reference – while a bank reference can be fairly easily obtained, it must be remembered that the other company is the bank’s customer and so a bank reference will stick to the facts. It is most unlikely to raise any fears the bank may have about the company
• a trade reference – this is obtained from another company who has dealings with your potential customer/customer. Due to the litigious nature of society these days, it may not be so easy to obtain a written reference. However, you may be able to call contacts you have in the trade and obtain an informal oral reference
• credit rating/reference agency – these agencies’ professional business is to sell information about companies and individuals. Hence, they will be keen to give you the best possible information, so you are more likely to return and use their services again
• financial statements – financial statements of a company are publicly available information and can be quickly and easily obtained. While an analysis of the financial statements may indicate whether or not a company should be granted credit, it must be remembered that the financial statements available could be out of date and may have suffered from manipulation. For larger companies, an analysis of their accounting information can generally be found through various sources on the internet
• information from the financial media – information in the national and local press, and in suitable trade journals and on the internet, may give an indication of the current situation of a company. For example, if it has been reported that a large contract has been lost or that one or more directors has left recently, then this may indicate that the company has problems
• visit – visiting a potential new customer to discuss their exact needs is likely to impress the customer with regard to your desire to provide a good service. At the same time, it gives you the opportunity to get a feel for whether or not the business is one which you are happy to give credit to. While it is not a very scientific approach, it can often work quite well, as anyone who runs their own successful business is likely to know what a good business looks, feels and smells like!

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