Customer financial statement analysis is an integral part of the credit decision making process. Many creditors now routinely update financial information on their publicly traded customers. Creditors are now more willing to ask privately held customers to provide financial information notwithstanding the often heard warning that asking for financial data from privately held companies is asking for trouble.
In my experience, the reaction from 95% of privately held companies is to simply ignore the request. For many years, I have worked for companies that require rather than request privately held companies requesting credit limits over a specific dollar amount to provide financial information. I cannot remember the last time any customer or applicant was shocked and appalled that I would request financial statements. In my opinion, every creditor should require regular financial statement updates from privately held customers with credit limits of a specific amount. Time after time, access to privately held customers’ confidential financial information has enabled me to limit losses.
To avoid pushback, my suggestion is to make a request for financial data appear routine. If a customer contacts you, explain that requesting financial information is a standard policy. If that response fails, the next response I use is to explain that financial data will help me to approve their credit limit now and in the future.
A word to the wise: If a customer fails and files and you do not have current financial information on file, it will be far more difficult to explain the rationale for your decision to extend them credit.
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.