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Debt Management

The 10 minute

Credit Check

By Roger Symes

E
very credit decision involves risk: risk of a bad debt resulting from a decision to grant
credit versus risk of a proitable sale lost due to a decision to require cash payment. You

will know what the right balance is for your company. In the last issue of The Ship Supplier
I described a single page check list designed keep that balance by aiding consistency in decision

making and providing a record of decisions taken. Every decision will be subjective, so it helps to
standardise the weight given to factors that contribute to each outcome. This is where “The 10-minute

Credit Check” proves invaluable. Here’s how it works.

Prior to making each credit decision answer “Yes” or “No” to the same ten questions. Each “Yes” answer
scores one point. Here are the questions.

1. Does the leet of your potential customer consist mainly of dry-cargo vessels and/or bulk carriers?
2. Does the leet consist mainly of older vessels, particularly over 20 years old?

3. Does the operator have only one, two or three vessels?
4. Are vessels lagged in countries that do not have a strong maritime administration?

5. Have vessels had more than one recent change of name, lag or class?
6. Is the operator located in a country with economic problems?

7. Is the operator located in a country that has an autocratic government?
8. Is the operator located in a country that has a commercially naive legal system?

9. Has the operator been in business for less than two years?
10.
Do the operator’s communications indicate a poorly organised company?
Scoring is based on the number of “Yes” answers,

The answers to many of the above
questions can be found by searching the

internet. You quickly learn where to look Score Rating
for particular pieces of information. The

necessary data can usually be found 0 Good
free of charge but paid-for services
1-3 Fair
collate information, so reduce4-6 Poor
search times. Information can also
7-9 Bad
be found in both hard copy and 10 Desperate
online directories. Keeping

past copies of directories

makes it easier to answer question 9. Various credit information
providers also supply reports containing the required information.

The best thing about “The 10 minute Credit Check” is that it is not
written in stone. You can modify it to suit your needs. You may wish

to add, modify or delete questions or adjust the scoring table. The
purpose is to achieve a uniform approach to credit risk evaluation

without delaying decision making. When well used, it can lead to
tailored decision making. For example, you may accept a higher

risk score on orders for provisions only, compared to orders for
technical stores. Decisions on granting credit to high scoring

customers may be restricted to senior management only. Even

when used at a basic level, answering the questions will lag up
potentially high-risk clients. Using “The 10 minute Credit Check”

will help your company manage credit risk.
In the next issue of The Ship Supplier I’ll describe some

invoicing pitfalls and how to avoid them. u

20 The SHIP Supplier Issue 67 2015