Clear policies required on:
1. Which customers should receive credit?

A- 5C’S-useful checklist

• CAPITAL: the customer must appear to be financially sound before any credit is extended.
If the customer is a business, its financial statement should be examined. Particular regards should be given to the customer’s likely future profitability and liquidity.

• CAPACITY: the customer must appear to have the capacity to pay for the goods acquired on credit. The payment record of the customer to date should be examined to provide important clues.

• COLLATERAL: It may be necessary to ask for some kind of security for goods supplied on credit. The customer should be able to offer a satisfactory form of security.

• CONDITIONS: the state of the industry in which the customer operates, as well as the general economic conditions of the particular region or country, should be taken into account. The economic-conditions can have an important influence on the ability of the customer to pay on time.

• CHARACTER : make some assessment of the customer’s character. The willingness to pay will depend of the honesty and integrity of the individual whom the business is dealing.
When the customer is a business, this will mean assessing the characters of its senior managers as well as their reputation within the industry.
 The selling business must feel confident that the customer will make every effort to pay any amounts owing.
A business will need to gather information concerning the ability and willingness of the customer to pay the amounts owing on or before the due dates.
B- SOURCES OF INFORMATION

Possible sources of information that a business may use to assess a potential credit customer (company) include:

• Trades references : references from others suppliers – danger that a customer selects when giving detail of other suppliers

• Bank references : ask for a bank reference

• Published financial statement: a limited company is obliged by law to file a copy of its annual financial statements with the Register of Companies. – available for public inspection – the annual report is available on the company’s website

• The customer: interviews with the director of the customer business and visits to its premises may be carried out to gain an impression of the way that the customer conducts its business.

• Credit agencies: specialist agencies exist to provide information that can be used to assess the creditworthiness of a potential customer. – information from various sources – credit rating – financial statements

• Register of county Court Judgements : any money judgement given against the business or an individual in a county court will be maintained on the register for 6 years.- Register available for inspection

• Other suppliers: similar business will often be prepared to exchange information concerning slow payers or defaulting customers through an industry credit circle. – cheap to obtain informations