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Important! This check is not intended for a credit check on your own company.
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?
You are never safe from a default of payment or the bankruptcy of one of your customers. Even a customer who has worked with you for more than 20 years and who has always paid your invoices on time could be unable to pay your bills on tomorrow. So don't be fooled by appearances.
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:
- Solvency
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.
- Cash
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.
Choose security
Entrepreneurs prefer to focus on their own business. And we understand that very well. That’s why, with our trade credit insurance solutions, we keep your company safe. You no longer have to stay awake when a large invoice might go unpaid. Trade credit insurance offers you payment security. It saves you many troubles and you can fully focus on what really matters to you. Trade credit insurance does not promise that there will be no default of payment, but we suffer the consequences for you.
Checking your customers’ creditworthiness not only means knowing whether you will be paid, but also developing your business with trusted partners and limiting the risk of non-payment. When the creditworthiness of one of your customers is impaired, you will need to review your payment's terms and conditions, possibly request additional guarantees or partial/full advanced payment upon order placement. If your customer is solvent, you can give them more flexibility and do more business with them. You can also check the creditworthiness of new customers which will allow you to develop new markets while limiting risks.