Step 1: Get insight into the company's financial health and performance with recent financial statements (think balance sheet, income statement and cash flow statements).
Step 2: Look at the ratio of current assets to current liabilities and analyse the liquidity position.
Step 3: Look at the ratio of equity to total assets and assess solvency.
Step 4: Analyse profitability by looking at gross and net profit margin.
Step 5: Is there a positive and consistent cash flow? If so, that may indicate that the client can meet future obligations.
Step 6: Analyse the debt-to-equity ratio.
Step 7: Assess whether there are factors such as competition, regulation, economic trends, the market and company profile that may affect creditworthiness.
Step 8: Compare your (potential) customer with other companies in the same industry.
Step 9: Identify potential threats (think operational, market or legal threats).
Step 10: Make up your mind, requesting a credit report from a specialised agency will provide more valuable insights than you can figure out on your own.
Just a little more for your information: these days, you can also insure specific debtors, or only your biggest customers, for example. So you don't always have to insure your entire turnover.
