The Four “C’s” of Credit

Extending Credit to your Customers.

With the end of summer approaching and businesses back in full swing gearing up for the important fall season, it’s a good time to discuss key best practices when it comes to establishing credit to your customers.

As we all have experienced, credit has become a very large part of today’s business climate. As payment transactions rarely are conducted in cash, companies now extend credit to their customers as a normal part of doing business today. However this may also put them at greater financial risk if their customers are not able to pay their bills.

What factors should you consider when assessing your customers? When deciding whether or not to extend credit to a customer, you will need to determine whether the business is able and willing to repay their debt. Is the business a good risk? In other words, is it creditworthy? Creditworthiness is based on a number of factors often referred to as the Four “C’s” of Credit – Character, Capacity, Capital and Conditions. These provide a practical approach for businesses to assess the financial risks involved.

The Four “C’s” of Credit
Character (or Credit Reputation): Do your customers honor their financial commitments or do they delay payments to their benefit and at an additional cost to you? Other key factors to consider are how well they know their business and what is their reputation in the business community.

Capacity assesses the ability of the business to generate cash flow in order to pay their bills.

Capital refers to the capital assets of the business. Every business has assets, whether it is accounts receivable, product inventory, equipment etc.

Conditions refer to external influences that affect your customer’s business including market fluctuations, industry growth rate, economic considerations and currency rates.

As part of Veri-Cheque’s Accounts Receivable Protection Plan, our credit managers work with you to assess the credit risk of your customers.

We start by evaluating your existing customer base and setting up individualized pre-approved lines of credit for each of your customers. The lines of credit we establish for each of your customers are based on both their activity with you and their overall credit worthiness.

For new accounts, there is no need for you to complete credit evaluations and analysis. Simply have your prospective customer complete a credit application and fax it to us. We will respond with an evaluation and approval within 24 hours, in the majority of cases.

To assist in evaluating new customers, we refer to our Restriction List, an extensive database of problematic companies and individuals that has been developed in conjunction with over 3,000 of our clients Canada-wide since 1978. This proprietary list is exclusively used by Veri-Cheque for the benefit of our customers.

To discuss your customer credit concerns, please call Veri-Cheque at 800-268-3284 and we will be happy to provide you with more information about the services we provide to protect your business against late payments and bankruptcy