Commercial Collections Blog

Five C’s of Business Credit

Whether you are a finance company setting up a financing facility with a lender or a manufacturer extending open account to a new business  customer, all forms of lenders look for certain characteristics when extending credit? Some of these are often referred to as the Five C’s of Credit. Capacity to repay is the most critical. Collateral and Capital are components that each lender should evaluate closely. Conditions often extend beyond the purpose the open account or financing is being sought. Such conditions as the economic environment and state of the industry the commercial business debtor is in should be closely looked at. And finally, Character, while subjective, is often considered as important as Capacity. Does the debtor’s history show they live up to their obligations? Does their history with you show a willingness to communicate openly about their financial situation–which includes providing audited and updated financial information if not a public company. Those in the credit/finance field that adhere to these five business  principals often have lower bad-debt at the end of the year than their less-vigilant competitors.

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