Seven questions to ask if no financial statements are received from your customer. (Communique).

Financial statements are, many times, not received from a customer. If this is the case and your customer is paying slow, the following questions might shed some light on whether your customer's slow payment trends are a temporary situation or a permanent weakness in financial strength.

1. Is your inventory expanding? If your customer's inventory is expanding, their inventory turns may be slowing down. If turns are slowing, the cash may be tied up in inventory. You would want to understand what has caused this situation to know whether it is a short-term problem or a long-term drain on cash.

2. Have you made any recent acquisitions? Sometimes acquisitions are made partly using working capital which could end up stretching vendors, If a recent acquisition has resulted in slow payment trends, you would want to try to discover whether this is a short-term situation or whether you have just become your customer's banker.

3. How are your customers paying you? Have you had any large bankruptcies lately? This question could shed some light on any accounts receivable problems your customer may have.

4. How is your relationship with your banker? What kind of credit line and long-term financing do you have? What is your credit limit, and what is your current balance? What interest rates are you paying? Do you have bank covenants and are you in compliance with your bank covenants? Your customer's banking relationship is usually a very important part of his long-term survival. You are trying to find out if he has an adequate line of credit. Knowing the interest rates he is paying at his bank can give you an indication of the type of risk the banker feels this account is. A company that pays high interest rates is probably a greater risk than a company that enjoys lower rates. Not meeting bank covenants is a red flag to watch this account carefully. Asking these questions will help you understand ...