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Dec 01 2016
Know Your Customer
Carmen Boykins, Kilgore Companies, Inc.

There are a number of steps that can be taken in order to get to fully know your customers. The best way to start this practice could be by having a proper credit investigation process in place. The credit investigation is best to establish new customers as well as monitoring existing ones. By analyzing a customer's business credit, bank references and even sometimes personal credit, you will be able to determine the degree of credit risk regarding your potential customer and to get a better understanding as to why your current customers pay the way they do. A credit investigation will also help you determine the amount of credit that should be extended to your new customer as well as if a credit increase should be granted.

Analyzing credit can be summarized in one statement: "Credit depends on the ability and willingness to pay." Credit would be meaningless without this statement. One form of practice can always be to refer to the 5 C's of Credit. They will provide an important base in the credit process and deliver a foundation for leading a proper credit investigation to help determine credit approval.

The 5 C's of Credit are:

  • Capacity - The ability to pay when a debt is due.
  • Capital - The financial strength of a risk as measured by the equity of net worth of an applicant.
  • Collateral - Those possessions or equities from which the customer or debtor might be expected to draw upon should character and capacity fail.
  • Conditions - The current and expected general economic situations as they might affect the applicant.
  • Character - Those moral qualities and actions of a credit applicant which oblige the applicant to pay as debs become due.

Those five steps are best to refer to when you're starting your credit investigation. It will help provide you with a foundation on if and when credit should be extended. This will also be a helpful tool on getting to know your customer.