Banks as a Source of Information on New or Existing Customers
Information Sought in a Bank Inquiry
The credit executive should explain to the bank, the scope, nature,
and reason for the inquiry. The depth of response rests on several basic
factors: the amount of money involved; being certain that the proper person
is contacted at the bank; being well prepared with precise questions before
calling or writing; and being careful not to violate the following caveats.
Banks will not usually volunteer unsolicited information. They will, however,
answer specific legitimate questions that do not violate confidentiality.
An inquiry that involves large dollar amounts and includes specific data,
such as terms of sale and a request for financial details, may well receive
a more detailed reply than one that refers to a small dollar amount with
vague reference to the terms of sale and other factors. Banks will generally
decline comment about a company’s ability to pay a specified amount.
Credit managers should also consider using a “bank-to-bank” reference
on large credits where high risk is anticipated. The credit manager should
know “his/her” company loan officer, so that the credit manager can call
their banker for an inquiry. A “bank-to-bank” credit report will often
provide more information, as bankers are willing to share more information
with each other than they would with a credit manager.
Questions To Ask
While all questions might not be answered, key questions a credit manager
should ask the bank include:
• How long has the bank had the account? If the account was opened recently,
who introduced the account?
• What are the average balances? The banker’s reply usually will express
the customer’s average bank balance in such terms as “medium four figures”
or “low six figures.” To ensure accuracy and consistency in interpretation,
Robert Morris Associates’ General Figure Ranges should be used (see chart
at the end of this paper).
• Have any loans been granted? If yes, how high have they been during the
past year, and what is owing now? How are cleanups—that is, are loans
repaid on time with a regular period during which no money is owed?
• When, why, and how often does the account borrow? “Why” is most important.
• Are loans made on straight paper? Are they endorsed or guaranteed? If
so, by whom? If endorsements are given by someone not officially connected
with the business, this person may be the principal behind the business
and a full investigation should be made to determine personal reputation
and financial responsibility.
• If borrowings are on a secured basis, what is the collateral: accounts
receivable, inventory, real estate, marketable securities, or cash surrender
value of life insurance?
• If loans are secured, has the bank perfected a financing statement under
the Uniform Commercial Code? This is normal procedure. If filing notices
of a security interest are important to a credit decision, verification
of the filing should be obtained through the office of the Secretary of
State of the state in which the financing statement was filed.
• What was the date of the latest financial figures filed with the bank?
• Ask for highlights on current assets, current liabilities, net working
capital, total assets, and net worth.
• Ask for a summary of the customer’s latest operating figures, and an
indication of profitability.
• Ask for a summary of the latest trade clearance conducted by the bank.
Reason for an Inquiry
The credit executive should explain the reason for the inquiry, describing
the size and basis of the order, experience with the account, and other
available facts. The banker may also ask some pertinent questions:
• Is the customer a new account, is the file being revised, or is this
a delinquent account about which the seller is concerned?
• On what line of merchandise is credit being extended, and on what terms?
• What has been the experience of the inquirer, and how much is now owing?
• How much does the seller know about the account already?
Caveats on Requesting Credit Information from Banks
When a request discloses the nature and scope of the inquiry, the bank
normally furnishes whatever data it is free to give. Sometimes, however,
it may not answer an inquiry because of previous poor experience with
the particular inquirer. Certain practices should be avoided by the credit
executive:
• disregarding the confidential nature, accuracy, identity, and source
of the inquiry and data.
• requesting credit information from banks without citing the precise amount
of credit involved—When this is not given on the inquiry, banks sometimes
ask for it so they may answer properly. The credit executive can avoid
delay by providing the information in the first place.
• not specifying the spread of the sale—Banks should be informed whether
the amount of credit involved (especially when it runs high) is a one-time
request or whether the amount is requested for one year.
• disguising or hesitating to disclose the reason for an inquiry—Credit
executives should be aware that there are situations in which the bank
cannot or should not give detailed information to an inquirer. If, for
example, the inquirer has a lawsuit pending against a customer and calls
the bank for the purpose of locating the customer’s assets, this is not
a customary credit inquiry. The bank would understandably object to this
type of deception.
• making competitive inquiries—Banks also will not handle competitive inquiries,
in which the information sought may be used competitively against the
subject of inquiry. This is not considered a legitimate trade inquiry.
Merger and acquisition inquiries would be considered of a similar nature.
• making repeated rush requests—Banks realize that businesses sometimes
need rush information, but will naturally object when a rush becomes the
routine rather than the exception.
• making several requests for information on the same company during the
same day—This underscores the need to be well-prepared before calling
a bank.
• using unsigned or rubber-stamped form inquiries that give the impression
that the inquirer is not concerned about receiving credit information—These
inquiries draw limited response.
Robert Morris Associates’ General Figure Ranges
Low 4 figures $1,000 to 1,999
Moderate 4 figures $2,000 to 3,999
Medium 4 figures $4,000 to 6,999
High 4 figures $7,000 to 9,999
The ranges are adjustable to accommodate all amounts in the following
manners:
Nominal under $100
3 figures from $101 to $999
4 figures from $1,000 to $9,999
5 figures from $10,000 to $99,999
6 figures from $100,000 to $999,999, etc.
