When extending credit to a new customer, creditors look for certain characteristics.
Some of these are often referred to as the Five C’s of Credit:
1. Capacity to repay
2. Collateral
3. Capital currently within, or available to debtor
4. Conditions, such as the economic environment and state of the industry the debtor is in
5. Character, while subjective, is often considered as important as Capacity
Does the debtor’s history demonstrate honoring their obligations?
Are they willing to communicate openly about their financial situation–which includes providing audited and updated financial information?
Those in credit/finance who adhere to these five business principals typically have lower bad-debt problems.
