Creditors' Rights 22: Predicting if a Credit Applicant is Likely to Pay
Q: How can I predict if a credit
applicant is likely to pay?
A: Determining whether a
customer is a good candidate to
receive credit before you approve
them can make or break your
business. I recommend that you
follow the three Cs of credit:
Character, Capacity and Capital.
The three Cs take into account
the character of the borrower/customer, the capacity of the
company to shoulder additional debt and the amount of capital
the company needs to maintain a favorable asset-to-liability
ratio. The first two Cs are easier to research; the third can only
be approximated by outsiders. Be sure to get both business and
bank references to find out if the company has the means to
handle more credit. Business references will help you determine
the character of the company, and bank references will help you
determine the company’s capacity to handle more debt. In addition,
carefully go over the credit application and make sure that
the information provided on the application matches up with
the company’s listing in the white or yellow pages. (All addresses
and contact information should match up!) It also never
hurts to obtain a credit bureau report or financial statement.
