Credit Analysis and Rating

Credit Analysis and Rating

A possibility to avoid loosing money due to a short-fall of your customer is factoring. But your factoring partner will pay you for your receivables only what the real value is (minus a margin), whatever the value is. He has to and will calculate the short-fall risk very carefully, especially for larger amounts which could threaten his own business.

But if you have no possibility to assign a larger part of your receivables to a factoring company because the costs of the factoring are too much, you can alternatively also figure out for yourselve what the credibility of your customer is. And, important, to manage therewith the final invoice amount per customer. Every risk has his price between 0% and 100%. For many companies the information received from credit-rating companies is sufficient enough, but there are two important disadvanteges:

Each costumer is unique in his relationship with you. He has a personal history and this history is not covered by an overall plain vanilla credit analysis.
Overall credit analysis is often reduced to a limited number of information. Such like share-capital, number of employees and if the company has problems to pay it's liabilities (see chapter company information below). This is certainly not enough for a safe judgement!

Hence, you find in the following a process how we can offer you. Our analysis is based on our experience in Banks and larger groups.

Quality Items

Information about the customer
History, background, field of activity, number of employees, ownership and legal responsibility.

Management und Behaviour
Aibility and reliability of the management are unavoidable conditions for granting a credit, i.e. giving away a value without receiving the same value in another form. No credit should be given to debtors which:

>	do not correspond with laws and basics of ethic behaviour, i.e. have a problem with the corporate governance;
>	with which too much negative experience was made;
>	have no not monitor information reliable which makes a analysis impossible.
>	For groups the whole structure and connections must be monitored in all details, at least the legal ones.
>	If the debtor was or is nearly bancrupt or insolvent.

...and so on in the following chapters, see the headlines below.We will be very pleased to assist you to measure your customer- and debtor risk!

Management
Information behaviour
Group Structure
Prosecution

Market and Presentation
Market
Strategy
Products and Services
Dependency

Financials and current Business
Profit & Loss Accounts
Balance Sheet
Budget / Forecasts
Uncovered Debts

Quantitative Items

Financial Topics
Profitability
Solidity of the Balance Sheet
Financing Power

Measurements

Weighting of the Items

Risk Clasificaiton

The analyised risks lead to a classification in form of risk-gaps which are close to rating of the two large rating agenecies, Moody's and Standard & Poors. The result is in the bandwith of:

"In the short and midterm quite stable, long term very stable, also under unfavourable conditions." = AAA resp. Aaa

till:

"Loss of the loan (capital and/or interest) has to be taken into account. That means, provisions need to be made, further unfavourable conditions lead directly to a loss of the investment." = C,D resp. C

Investment / Loan Costs
Risk-Costs
Refinancing-Costs
Capital-Costs
Operating Costs
Market, Competitor Environment and Margin

The size of such a analysis according the above example is about 10-15 pages.

This analyis is not only strongly recommended for your customers, it is also very helpful in judging oneselve before asking Banks for money. Thus, you know what your negotiation room is and you are able to change important key-elements before the Bank is saying no to a loan or is offering worser conditions than you could get if you are better prepared.

It will be our pleasure to support you.
information@treasury-consulting.ch