Article 2: Documentation

Recently, we discussed the importance of having a uniform credit policy within your company. This helps ensure that all credit applicants are treated fairly and given due consideration while also protecting your company by reducing risk. One of the most essential components in this process is documentation. In this segment of our discussion, we will discuss the most essential forms of documentation you should require from every customer to whom you extend credit.  This is the same process we use at our factoring firm for each factoring facility.  

 Start from the beginning: A credit report

This one is a given. You have to have a credit report on every customer you consider giving credit to, and you have to keep updating those reports periodically. It’s simple and effective. What type of credit information you need will depend on the type of business you are in.  The following is based on what we need as a online invoice factoring company.

 Balance it out

A balance sheet is an accounting of a company’s assets and liabilities at a set point in time, and it is one of the most useful tools in your arsenal when it comes to getting an accurate picture of a customer’s financial health. Larger businesses tend to have CPAs prepare their balance sheets, and while this is no guarantee that the document is perfect, it is less likely that a professionally prepared balance sheet will have errors or omissions than one prepared by a less qualified individual.

You must have a balance sheet from customers to whom you plan to extend credit. However, simply having one balance sheet is not enough. In order to get a truly accurate picture of a company’s finances, you need to see new balance sheets every quarter or two so that you can get a better idea of the company’s performance over time.  As a small buisness factoring invioce firm we pay particular attention the accounts receivable on balance sheet.

Operating statements speak volumes

Operating statements provide data on a company’s sales over a set period, such as a fiscal quarter. These documents show the sales, profits, and losses a company experiences over that time, and it’s extremely important to review them regularly. As with balance sheets, operating statements can fluctuate greatly, so it’s important to require regular updates from your customers.

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