Purpose: to assess a company’s ability to honour its short-term commitments.
With is in mind, we have established useful standards for understanding the statistical tool.
The various sectors of activity have their own characteristics (margins, cycle lengths, industrial or service orientation, payment habits, etc.).
This has an effect on the fluidity of cash flows in companies
A company’s size, type and quotation have a direct influence on its need and ability to obtain credit from suppliers.
We have drawn up a scale which takes these characteristics into account.
According to our model, even the smallest company has relationships with 4 strategic suppliers who may offer credit simultaneously.
Traditional credit assessments indicate a maximum sum outstanding.
Our Credit Assessment goes further than this by suggesting a monthly amount of credit.
It evaluates a company’s ability to honour its commitments in periods of 30 days, depending its cash rotation cycles.
Taking account of all these parameters, our Credit Assessment suggests the sum that each supplier can allow in trade credit, per period of 30 days, without incurring foreseeable risk.
As an example, a Credit Assessment of 10,000 € means that if you open a 30-day credit of 10,000 €, you are within the range that your client can support.
If you give credit of 20,000 € at 60 days, this is a rate at which your client is able to repay you.
If, however, you grant credit of 40,000 € at 90 days, you are imposing repayments which go beyond the rate at which the client releases liquidity.
If several suppliers do the same simultaneously, there is a risk of overheating!
It is therefore up to you to calculate your risk, depending on the rate at which you bring in cash.