Dubai, October 25, 2020

5 steps to assess customer credit risk in the UAE

For UAE firms, the key to avoiding this nightmare scenario is properly assessing the credit risk of customers.
If you’re a company considering extending a line of credit to a customer, ‘creditworthiness’ is one of the most basic concepts in business credit.

Here are the five key steps – five crucial Cs – to determine the creditworthiness of a potential client or customer.

  • Capacity
  • Capital
  • Character
  • Collateral
  • Conditions

Lenders need to be sure that the borrower can repay any credit based on the proposed amount and terms. The first thing to look at is what is the business’s financial capacity to pay its invoices? Does it have enough cash flow? Is it saddled with a lot of debt?

“Business credit applications typically ask the applicant to supply bank references, trade references, and financial statements,” said Leroy Pinto, Head of Marketing & Products, CRIF Gulf (Dun & Bradstreet). “These documents will reveal the applicant’s capacity to pay. If an applicant can’t provide financials or references, credit managers will need to find other ways to assess the capacity. Many consult business credit reports, which contain scores and ratings that can reveal a potential credit risk.”

Read more about the five key steps on gulfnews.com