CAT / FIA FFM Syllabus F. Credit Management - Assessing the credit-worthiness - Notes ^{2 / 7}

When assessing the creditworthiness of (potential) clients, companies can use the 5 C’s approach:

1. Character:

   Focuses on the reputation of the principals/decision makers at a company; credit checking agencies and bank references assist to this end

2. Capacity:

   Examines the company’s cash flow generation in the context of management’s ability to perform competently and reliably in meeting their obligations. Financial statement analysis is a major part of the exercise here

3. Capital:

   Identifies and assesses the financial “staying power” and resources of the business

4. Collateral:

   Assesses what security the company is willing to provide in support of the intended transaction.

5. Conditions:

   This is a general review of the economic environment to appreciate to what extent a customer may be affected by a decline in general business conditions.