How Commercial Credit Analysis Reduces Late Payments

Posted by Ryan Howard on May 13, 2022 1:50:15 PM

How Commercial Credit Analysis Reduces Late Payments

Commercial credit analysis evaluates corporations to determine if they can pay their financial obligations.  Although this is pre-engagement and on the front end of the A/R and collection process, it’s still an important part of any B2B accounting process. To help reduce delinquencies and bad debt write-offs, businesses should put focus on the front-end credit analysis process prior to contracting with a new client.

How Commercial Credit Analysis Reduces Late Payments


What is Commercial Credit Analysis?

At its basic function, commercial credit analysis reviews the risk of issuing credit to another company. Business-to-business partnerships or transactions rely on both parties being financially viable to work together. The "five C's" analysis of their credit reviews the following information:

  • Character - their reputation and credit score
  • Capacity - their cash flow and ability to pay
  • Capital - how much money has been invested in the business
  • Collateral - the security provided to guarantee the loan or credit
  • Conditions - the purpose of the loan or credit

This analysis provides context on the reliability of the business and its ability to make payments.

Who is Responsible for Commercial Credit Analysis?

A credit analyst or credit manager reviews the above information on behalf of the business issuing credit. As part of this process, they may:

  • Create and apply credit policies
  • Run credit reviews of new and existing customers
  • Run credit checks of potential customers
  • Underwrite credit applications
  • Supervise other credit analysts
  • Set payment terms

Business Credit Checks with VeriFirst

How Does Commercial Credit Analysis Reduce Late Payments?

When credit analysts work on the front end of the accounts receivable process, they're establishing the creditworthiness of potential clients before taking a risk. They may also evaluate current late-paying clients to adjust payment terms or apply stricter credit policies.  It's important to ensure that the accounts receivable team members are working closely to issue credit carefully and tighten things up when cash flow is affected. 

Hiring a commercial credit analyst? Download our sample accounts receivable job descriptions template below and find a qualified candidate.

Sample A/R Job Descriptions

Topics: Best Practices, Accounts Receivable