Last post we talked about Credit Management for an existing customer.

http://faoblog.com/processes-ar-credit-management-2/

For a new prospective customer, this becomes a little tricky. Analytics around the payment patterns for the last few years will not exist, and there will be no defaults. But the following points will surely exist:

  • Market dynamics of the customer’s business and global trends of his industry
  • Changes / challenges in the financial standing of the customer
  • Regulatory influences on the customer’s business
  • Competitive pressures and changes thereon
  • Availability of alternative suppliers to the customer and the terms offered by them

To add to this, you may have to do a detailed analysis of the following:

  • Analysis of the customer’s market standing and discussions with entities he deals with
  • Review of ratings assigned by standard rating bodies, both in terms of his credit standing and also financial status
  • Similar inputs can be taken from bankers and other entities
  • Detailed analysis of the credit terms he commands in the market.

There a lot of unknowns and the key thing is to collect as much inputs as you could.

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