Domestic Business Credit Reports

What do we pay attention to when analysing financial risks?

Before you start business with new customers or potential customers, you want to make sure they can make their payments on time. The factors that we pay attention to when assessing the credit risk of customers or potential customers are as follows:

• Financial soundness and reliability: Companies that demonstrate financial soundness, adequate capitalization, and a record of raising capital as needed generally carry lower risk. Signs of stress on a company's past (especially recent) financial performance, including cash shortages, weak sales growth, declining revenues, closed locations, missed payments, and capital raising issues, can raise red flags for a higher-risk client.
• Business stability and diversity: Examining a new customer’s or potential customer’s income stability, liquidity, debt-to-equity ratio, profit margins, and return on investment (ROI) can provide important information about its stability and likelihood of paying on time. A company with a diverse revenue stream, customer base, geography, and industry classification can better handle fluctuations.
• Industry risks: A potential customer facing significant industry risks is also more likely to have a greater credit risk. Considering the sector-specific regulations and policies, the economic trends and volatility affecting that sector, the level of competition in that sector, the growth rate of the sector and their importance for the general growth of the economy are important points to be considered.
• Business news: Researching a potential client can provide useful information about stability and risk. If the company is winning awards, opening new locations, hiring, has lots of free customer reviews, and is the subject of other positive news, it's more likely to be stable and low risk. If there are investigations, negative reviews or news articles, layoffs and closing, and other negative news reported, the company is likely a risky prospect.