What is the due diligence to be conducted for a new client requesting working capital facilities with your company?

Due diligence includes the following:

1. Last12 months bank statements are to be checked for excesses / irregularities

2. Networth of the promoters for past2 years is to be checked for

3. Conduct of the account with other banks is to be thoroughly checked for

4. Credit ratings / extensive internet search on the customer is to be carried out

5. Past few years income tax returns are to be checked for tax paid (if tax laws applicable)

6. Latest stocks and receivables audit is to be carried out and authenticity of the stock statements being submitted by the client is to be checked for.

I opine that these above are essential while performing due diligence. However, these differ from country to country, based on my experience with UK banking and Indian banking.

When client approaches for a WC facility, we need to understand the necessity, urgency & quantity of the funds required first.

Analyse the trend in clients business vide balance sheet, income statements for last 3 years atleast, what is the current working capital gap, how are the income, debt ratios. Quality of assets to be identified, check on current  & past repayment history of the company, how much has the partners contributed to the Networth.

Most importantly the promoters financial and professional back grounds.

Finally whether the funding will yield better profits for future, project the receivables & take a decision.

Cheers!!!

In addition to what Animesh and Vinod has said:

- calculations for next 12 months needs- estimating working capital cycle and the gaps (usually a CMA) and MPBF 

agree with answers ,,,,,,,,,,,,,,,,,,,,,,,,,,,...................................

Identiditiy of the customer

Credit Check Report

Sample Bank Statment and estimate Cashflow via Modelling tool and assess Ratios

Bank Lender's "know your customer" practices should include the following:

• Verify the identity of all customers requesting your services in connection with any  Bank transaction.
• Identify the ownership of all accounts in your institution used in connection with any  Bank transaction.
• Obtain identification from all of your customers that are party to a Bank transaction, with which you have a contract relationship, and to which you make disbursements.
• Obtain sufficient information regarding your customers related to any  Bank transaction to determine if the transaction is unusual or disproportionate to the customer's business.
• Maintain records of your compliance with these "know your customer" requirements.

agree with Mr. Sai,

thank you for the invitation

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