Assessment of existing credit customer and a new credit customer?How you evaluate and what are the steps of Assessment?

Assessing existing customers for credit worthiness are much easier than assessing the new customers who yet to start business with you.

Existing customers - you have the knowledge and experience with the customer of their financial abilities based on delays, lapses, defaults, short payments and restriction on supplies for consecutive short payments or lapses. These patterns and being an existing supplier, you also have the information about their finances and dealings with other suppliers/vendors, which help you understand their situation. You can customize supplies based on all the above information.

The above scenario will apply to good customers who are in the process of expanding. In this situation, you can trust customer and extend your support by increasing their terms of payment by additional amount and number of days.

As for new customer to be supplied, you must do lot of research prior to extending credit facility. You need to check their market reputation related to payments and conflict free dealings with existing suppliers, seek help from friendly supplier for providing with information that can help decide the credit worthiness and ask customer to provide information about their cash flow and facilities from banks they deal with. This is a confidential information which most of the customers may not provide unless they are in dire need of the material you supply or in some cases customers who are honest will not hesitate to give this information. Also keep in mind that as a sales person you should have the ability to develop good relations that will make customer feel comfortable and trust you will help getting the information you need in decision making.

In either cases, present market situation, it is always better to deal with customers on credit for terms as per their need against negotiable instruments i.e. Bank Guarantee, Local Letter of Credit and Bill of exchange. These financial instruments do not require any funds in customers bank. Those are facilities provided by bank based on customers financial abilities. It is easy to convince customer if you make them understand the benefits which are (1) they get uninterrupted supplies (2) they get longer credit terms both amount and days (3) it will reduce their liabilities piling up to bad debt and interruption in production (4) reputation in market and as a supplier your sales will be100% against collection (5) easy to manage business with customer (6) improve business and personal relations with customer.

It is easy to implement with new customer but hard to do with existing customer as there is possibility of losing some of them as market share, but it is worth when you do the maths. If you land into collection issue, you loose both profit and cost above all you company will be paying interest on that money in the business process. There will be initial drop in sales but will be excellent for long run. You don't need any collection department, a bill collector or a sales person running around customer for money. Your accounts/finance department will take care through bank who will provide you information about receivables in order to maintain your sales.

Hope this explain your question. Let me know if you have any concern not explained above.

For Existing Credit Customer:

1. Making Payment on time.
2. Meeting and fulfiiling the procedures of the payments.

For New Credit Customer.

1. whether the customer fulfil all the requirement and procedures of the Company.
2. Checking the security in case the customer fail to repay the debts.
3. New credit customer must follows the documentation of existing credit customer.

Both must fulfil the rules and regulation prescribe as per company laws to ensure if any no bad debts occurs.