For commercial credit, there is no better source of information about the operation and financial condition of a business than the business itself. Therefore, it is reasonable to expect that direct contact with the company's financial statements (FS) and latest general information sheet (GIS) can provide the credit analyst with the available financial details, bank and trade references, principals and other information of importance. How this information is requested and obtained will depend upon the time available, the location of the customer, the relative importance of the credit exposure, and the degree of cooperation, which can be obtained from the customer and its principals.
Using direct request approach or contact between the credit department and the customer offers many advantages. Regardless of the method used, such contacts can be invaluable in establishing a close and friendly working relationship and inspiring mutual respect and confidence between the creditor and the debtor. They can be used to clarify terms of sale, thereby eliminating possible dissatisfaction on the part of the buyer. Particularly, at the early stage of the relationship, direct contact can assist in developing a sound basis for continued credit granting.
In doing commercial credit investigation, the Credit Manager should remember that he or she is the representative of his company and that sound credit information is undoubtedly one if its priorities. A Credit Department, which builds goodwill with its company's customers, will also gain the fullest cooperation and respect from the sales department. Contact with the customer may take the form of a personal visit, a phone call, or by direct correspondence.
However, there are times that due to sheer volume of application and centralization, not all can be visited. In this case, your own salespeople would be a better source of information. Through the frequent calls of your salesman on customers, the salesman may receive early news of changes in sales trends, collection, movements of inventory and other matters. Since the salesman knows his account personally, his information can be of great value to the Credit Manager. Due to the regularity of his visits, the salesman can be trained to develop facts and impressions on a continuing basis to make a report on this.
And of course, very important is to have bank checking. Banks are usually quite knowledgeable about marginal companies. Having obtained the name of the customer's bank by means of direct inquiry or by noting the banks on which his checks are dawn, the Credit Manager or representative is in position to secure from the bank further helpful information. A letter inquiry to the customer's bank usually will bring a reply indicating the customer's average bank balance together with information concerning the customer's line of credit, if any, and the manner in which payments on bank loans are handled.
EDITORS NOTE: Mr. Ed Limtingco is the VisMin Manager of CIBI Information Inc. Past President of Financial Executives Institute of Cebu (FINEX-Cebu). He can be reached at 0917-7220521 or at elimtingco@cibi.net.ph