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What is creditworthiness?
Creditworthiness is a value that measures the capacity of an individual or a company to refund its debts, in the short or long term, to banks, suppliers and/or partners.
Conversely, insolvency corresponds to the inability of an individual or a company to refund its debts, in the short or long term, to banks, suppliers or and/partners.
A company is creditworthy if it has enough assets to cover its liabilities. Otherwise, it will be insolvent. Creditworthiness is generally used to assess the risk of granting a loan or a credit to a company.
Why check the creditworthiness of your customers?
- A large unpaid invoice can jeopardise the growth of your business or eventually lead you to insolvency.
- Unfortunately, even a reliable business partner can run into financial difficulties.
- And what do you really know about your new customers? Are they as financially stable as they seem? It is therefore essential to check the creditworthiness of all of your customers.
- Finally, you want your customers to pay your invoices.
How to get sure a customer is creditworthy?
What factors define the creditworthiness of a company?
At Allianz Trade, we fix the solvency of a company with a risk score: the score 1 is excellent, the score 10 means that the company goes bankrupt. A number of factors define a company's creditworthiness:
The solvency ratio indicates whether a company is able to meet its short- and long-term payments and refunds. The solvency ratio calculates how much of the total capital is debt and how much is equity. The higher the share of equity, the better the solvency of a company.
Our risk analysts check whether a company has sufficient liquidity to refund short-term debts. When a business has many suppliers with long-term payment terms, or when it has no cash resources, the continuity of this company is seriously compromised. If a supplier demands payment of a debt, the company can’t afford it. This has a negative effect on the solvency of a company.
- Turnover and profit
We also take this information into account when defining the creditworthiness of a company. The more profit there is, the better the solvency of company.