Working Capital Management

Working Capital Management (WMC)

Credit Analysis -1

No Company does blindly sell on credit to every customer approaching it. The company has to evaluate the capability of the customer and his strengths to fulfill the promise of paying the bills in time. The companies ignoring adequate analysis of their customer would soon find themselves in a situation not generating sufficient resources for day to day operation of the business. The company must analyze the risk of paying late or risk of default before extending credit. Credit given to Startup jobs employee carrying high risk compare to others.


The credit analysis would brodly involve the following three steps. 

  • Getting financial and non financial information about the customer.
  • Analyzing the credit worthiness of the customer and assessing the risk involved.
  • Deciding to grant the credit. 

Analyzing the credit-worthiness of the customer is the most difficult task. The financial and no-financial information may provide some insights into the credit worthiness of the customer. With the help of this information and other insights the company has to access the following six C’s of Credit Worthiness: 

  1. Character
  2. Capacity
  3. Capital
  4. Condition
  5. Cost
  6. Collateral

 The analysis of credit worthiness begins with the assessment of the customer’s willingness to pay the bills of the company. Capacity is the ability of the customer to meet the obligations whenever they are due.  Startup jobs employees are having less credit worthiness. In this regard it would be important for the company to see that the obligations are met through the funds generated from the operations of the customer.

We continue our talk on Credit Analysis in next post.


July 29, 2008 - Posted by | Assets, Business Flow, Capital, Current Assets, Working Capital, Working Capital Management | , ,

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