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Selling on Credit Without Financial Information

Originally Published: August 2012

What do you do when a potential customer approaches you for credit but is unwilling to submit financial information – and an independent credit report is either unavailable or provides little help?

Difficulty in obtaining what is needed to make an informed credit decision often confronts companies, espcially those doing business in the international marketplace. When the pressure is on to approve credit in order to take advantage of a significant sales opportunity, it's tempting to by-pass usual credit policy procedure. As a result, many assume an increased risk by basing a decision on less than adequate information.

Selling on credit is always a risk.  You can minimize that risk, however, by carefully considering all the available data and keeping in mind that every credit sale has the potential to become a collection problem.

So, how should you proceed when financial information is unavailable? Here are a few things you can do.

Credit Application.  This is an important source of information when considering extending credit. If a customer is unwilling to fill out such an application, they may well be hiding something. You must carefully consider whether or not you can take that chance.

Our recommendation:  never extend credit without a complete, signed credit application. (See “Credit Extensions are Loans”) Once the application is received, verify all of the information either personally or through a third party.

Independent Credit Report.  Attempt to secure information through an independent credit report. If the report indicates that no information is available, it may actually be giving you something very important to consider.

In our company's experience, approximately 10% of the reports on U.S. buyers come up blank. That means, the company does not exist at the given address, phone and fax numbers.

What else does it mean? It means the company is not registered with the state in which it supposedly exists. There is no listing with the phone company in that city or the local chamber of commerce. Other businesses in the neighborhood have never heard of it. In other words, if the company exists at all, it is very possibly a small, unregistered operation working out of the owner's residence, representing a poor credit risk.

Site Visit. If interest in this account still exists given the absence of substantive information from the credit report and the customer's refusal to provide financials, if possible, schedule a joint Sales/Credit site visit with the prospective customer. 

A site visit allows you to size-up the customer's business. This more personal approach sometimes puts the customer at ease and may result in his offering something short of full financials, such as a balance sheet or additional trade and bank references. These documents may supply you with sufficient information on which to base a decision. As a result, you may be able to offer a compromise - perhaps half open account and half cash in advance or D/P or D/A terms. Other options might include obtaining trade credit insurance on the sale, requiring a Letter of Credit, securing your interest in the products you are supplying, etc.

As you can see, there are several sources of information that can and should be looked into, before you arrive at a credit decision. It's good practice to avoid basing your entire decision on one source alone. A credit application, credit report, trade and bank references and a site visit all provide important input when developing the risk profile of a prospective customer.

Once you extend credit and establish a credit limit, it's important to continue to watch the account. You should consistently monitor the customer and adjust the limit as necessary, based on changing conditions and your ongoing experience.