Re: credit checks

>List members:
>
>We'd like to do a credit check on a prospective client. Having never done
>this before, we'd appreciate any input.=20


Stefani,

Don't know if you've gotten any off-list replies, but since I haven't seen=
 any on-list, I'll give it a shot.

There are at least two basic types of financial references:

(1) Trade references. This refers to suppliers of the firm in question. Ask=
 for a contact name with each reference.

(2) Bank references. This refers to the firm's bank(s). Again, ask for the=
 name of someone who is familiar with the firm, if available.

Presumably what you want to identify is the risk of the firm's non-payment=
 of fee they will be owing you. Contacting a number of trade references=
 supplied by the firm can give you a sense of the firm's payment history.=
 You might consider asking each trade reference:

(a) How long have you done business with the firm?

(b) What has been the average size of accounts recievable you've had with=
 the firm, in orders of magnitude (low hundreds of dollars, high hundreds,=
 low four-figure, mid-four-figure, high-four-figure, etc)?

(c) How promptly has the firm paid on its accounts (average number of days,=
 if available)?

(d) Has the firm ever payed less than the amount due, or made payment late?

(e) Are you aware of any issues the firm may be facing that might affect its=
 creditworthiness?

=46or the bank reference(s):

(a) [the same]

(b) What is the average size of the accounts the firm has with you (again,=
 in broad terms: I don't think a bank will give you exact dollar amounts,=
 and it needn't).

(e) [the same]

=46irst off, of course, you should explain that you are calling because your=
 company is considering extending credit to the firm and the firm has listed=
 the callee as a credit reference. Also, explain that you're not going to=
 ask for exact dollar figures, just orders of magnitude (tens, hundreds,=
 thousands, ten thousands, etc, plus low, mid, high for the higher amounts).

How many references? I think 4 or 5 is most customary, but you should ask=
 for as many as you will need to make you feel comfortable with the credit=
 risk you're considering.

How to interpret the information you get? That's tricky for the first=
 several clients, but becomes easier as you build up a database of answers=
 to the above questions and your resulting experience. Perhaps others on the=
 list can share specific experiences.

Hope this helps.

-Paul


_______________________________________________________=20
Paul Sciortino
paul(at)hieroglyphs.net
218-724-4763

http://Hieroglyphs.net  -- For people interested in the=20
language and literature of ancient Egypt.
_______________________________________________________

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