Check a client
How should you analyse a company’s main financial indicators before granting payment terms?
Financial analysis is not about finding a magic ratio. It asks whether a business generates resources, has a sufficiently robust structure and can meet short-term liabilities.
Review four complementary areas
These indicators must be reviewed over time and in the context of the company’s business model.
- —Profitability: does the activity generate sustainable results?
- —Financial independence: how much equity supports the debt?
- —Solvency: can the business withstand a shock?
- —Liquidity: can short-term resources cover near-term liabilities?
Do not read figures in isolation
Positive cash may follow recent financing, while rapid growth can strain working capital. Compare several years and investigate material changes.
- —Review revenue and margin trends
- —Compare receivables, supplier debt and cash
- —Identify repeated losses or weakened equity
Convert analysis into commercial terms
Use the result to set a credit limit, deposit, billing milestones and warning process. Treat missing or outdated accounts as uncertainty.
- —Common mistake: confusing growth with liquidity
- —Financial analysis does not replace monitoring actual payments
Conclusion
A prudent approach combines accounts, legal information and payment behaviour. Significant commitments may require professional review.