Home topics finance finance-cash-flow Advice Cashflow Advice The five C’s of credit every SMB needs to adopt Lorna Brett March 13, 2012 Risk management and good credit management are key to keeping a business healthy. Before signing up new creditors, most businesses will (or should!) perform a thorough check on the company and its director/s to evaluate its risk exposure. Statistics show future losses can be reduced substantially by looking at the people behind a business and any related entities they belong to. Before offering credit or signing a new customer, Veda recommends businesses adopt the 5 C’s of credit – character, capacity, capital, cashflow and conditions – and use these as a guide in assessing the credit risk of potential creditors . 1. Character: Research the people behind the organisation you are dealing with. It’s important to assess a person’s willingness to pay, based on their overall attitude, their company values and the financial track record of the business and its leaders. Check for any signs of a dark financial past. Factors such as past defaults or court actions can give important insight into the financial and ethical standards behind the people running the business. 2. Capacity: Assessing the prospective organisations capacity to generate sufficient cashflow to cover any outstanding debts should be the highest priority of any credit manager. This is critical before investing in a company or extending a large amount of credit. 3. Capital: Understand your customer’s capital base, including their cash and other assets, as