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Requesting Financial Information The older the financial statements you have on file for a customer, the less reliable they are as an indicator or predictor of credit risk. The goal of the credit department is to keep credit files - including customers' financial statements - current. Requesting updated financials statements is a sensitive issue with some customers. Credit professionals do not want to be over-eager in their efforts to gather this type of information, but if a customer does not share financial information with a credit bureau then it may be necessary to ask the customer for financial information. Some creditors give the debtor a lengthy explanation of their need for financial data. Other creditors simply assume the debtor does not need a detailed explanation about a request for current financial statements. Most requests of this type are deliberately brief. Generally, requests for financial data should be made to seem as "routine" routine as possible. Typical language includes the following: "We periodically review the credit files on all of our active customers. I note that the financial statements we have on file for your company are more than two years old. Please send me your current financial statements including a Balance Sheet and Income Statement." At some point, the credit department must draw a line beyond which open account credit terms will not be offered to certain customers without updated financial statements. Where that line is established depends on a number of variables. One of the most important of these variables is the creditor company's sensitivity (or lack of sensitivity) to credit risk. The credit manager has the difficult (and thankless) task of trying to figure out how much credit can safely be extended in the absence of current financial data. The better you are at striking a balance between demanding financial updates from customers and managing credit risk the more successful you will be as a credit manager. Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore. |
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