Insolvencies often occur when an important business partner folds. Learn how to assess your customers to protect your company from dealing with insolvent customers.
Various businesses find it difficult to weather losses caused by a customer’s insolvency and can quickly end up in dire straits, with liquidity constraints threatening their very existence.
However, going into insolvency doesn’t occur overnight.
Therefore, a timely identification of vital factors is imperative to protect your business
Identify and monitoring customers
The downloadable checklist below will help you identify the most important indicators you should monitor in a customer. The credit risk goes up with the number of indicators that are fulfilled in the checklist. This will thus enable you to adapt your business policy accordingly by briefly evaluating the following factors:
- Payment behavior
- Senior management
- Sales performance
Limitations of insolvency risk-monitoring
A 100% accurate prognosis is hardly possible. It is not uncommon for companies to be successful despite showing negative indicators. On the other hand, it is not uncommon for businesses that in the past did not show unfavorable signs to file for insolvency. However, practical experience shows that the chance for a future insolvency will grow with the number of negative characteristics and indicators.