Jeff Judy

Jeff's Thoughts - April 24, 2013

Are You Getting Enough Out Of Credit Analysis?

You rely on credit analysis to help you choose sound credit customers. But when the commercial credit analysis process is too narrowly focused on just approval or decline of loan applications, that could lead to missed opportunity.

After all, credit analysis is not an isolated event, it is part of the customer relationship. Your analysis gives you a great deal of information about the customer. A little recycling of that information can help you grow your customer list and expand your income base.

That's because what you learn in credit analysis can offer valuable new insights to the business owner or manager. Are you in a position to suggest ways they could manage their cash flow more effectively; to point out trends in their numbers that invite management action; to educate them about how they can improve their overall financial health and sustainability?

What are the benefits of a conversation that goes beyond just "approval/decline"?

Your best business customers mean to find the time to do a comprehensive review of their financial and business results. But there's always something more urgent, and the review never happens.

When you perform credit analysis, you provide the review they will never get to. You can highlight short- and long-term solutions to important business needs, earning their trust and their loyalty for your helpful insights.

Even successful businesses need solutions, including solutions to "problems" they may not even realize they have. You can show them how their decisions impact their cash flow. You can help them recognize trade-offs they overlook. Should they offer customers more lenient terms on receivables or better pricing for prompt payment? Where is the balancing point between conserving capital and performing maintenance and supporting growth?

And sometimes your analysis points clearly to a specific solution to a specific need. As you look at how the customer handles payables, receivables, and inventory, you may be able to point them to cash management products, or, in some cases, to solutions like factoring or asset based lending.

In an ideal world, businesses would have the time, knowledge, and skills to consistently review their own histories, forecast their futures, scrutinize their cash flow, and adjust their practices accordingly.

But until an ideal world comes along, the next best thing is working with a bank that takes a little extra time (at very little extra cost to the bank) to share what they learn from credit analysis. That is a bank that deserves their customer's loyalty, and a bank that will be at the front of the line the next time that customer needs financial services of any kind.