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Posted December 16, 2019 by Courtney Wilkinson

Determining Vitamin C Deficiency: and An Important Question To Be Asked
By: Ken Young, CCP Emeritus

Those who have been trained in the art of credit management know very well the 5 C’s of credit that should be investigated prior to granting a line of credit.  TheseC’sconsist of the following:

1) Capacity measures the borrower’s ability to repay the funds by assessing the cash flow and financial capabilities of the company. Investigating the trade references of the firm gives insight into the past history and current status of repayment of amounts owing, and is a good method to help determine the probability of timely repayment.

2) Capital refers to the investment made into the company.  A large investment into the firm decreases the chance of default.  An element of excess capital provides a cushion for any unexpected financial setback.  The questions that need to be asked are: Who is investing more in the firm, the owner or the lender? And if the firm is losing money how long can it survive?

3) Collateral determines what security the firm has available, and what has already been pledged.  Has the firm granted the bank collateral on all of the assets?

Is it appropriate for you to consider an element of security from the firm or a personal guarantee? This gives the supplier a plan B if everything does not go well.

4) Conditions relate to a number of areas, such as interest rate or currency fluctuation and the life cycle or shelf life of the product.  If the firm is barely making ends meet could they withstand an increase in the interest rate?  Is there new technology that is going to make their product irrelevant soon?  Is the shelf life almost at the end?  If the firm exports and sells in adifferent currency what effect could that have?  Will a change in the overall economic conditions have an effect on the buying patterns of the customer?

5) Character gauges the trustworthiness of the owner(s).  Do you feel comfortable selling to them?  Do you perceive them to be honest, possess a sense of responsibility and believe that they will keep their word if they make a commitment?  This may be described as a “gut feel.”

I recall very clearly many years ago at an industry trade meeting, a fellow Credit Manager made a unique point about financial statements.  He said that when you are reviewing financial statements (which assists greatly in the assessment of the 5C’s) with a customer, the first thing you should do is to ask, “Is there anything you would like to tell me about these before I review them?”

This gives the client the golden opportunity to explain any weak areas and to let you know what they are doing to remedy them.  If they don’t disclose anything specific at the time and upon review of the statements you ultimately see some areas of concern, before you ask for an explanation from them about it, you may ask yourself are they even aware of this?  Is there a concern that the firm is suffering from a Vitamin C deficiency – namely, cash, credit and customers?  That’s a very simplified version of the 5C’s.

Over the years I’ve found that asking this question can get to the heart of concerns more quickly.  This allows for more time to be spent on questioning how the business will change and grow profitably in the future and on determining how your firm can assist in that.

Ken has been a credit management professional for over twenty-five years and has global experience in a broad range of industries including the food (aquaculture & beverage), chemical, manufacturing and transportation sectors.  Ken is honored to serve on the board of the Credit Institute of Canada representing the Ontario region.

He has been awarded the highly esteemed CCP Emeritus award from the Credit Institute of Canada for distinguished and meritorious service for the advancement of credit education and the credit profession.  
Consulting projects and speaking engagements have included Toronto, Brunei (S.E. Asia) and Jamaica.


Tell us how you have dealt with 'Vitamin C' deficiency in your assessment of customers' credit-worthiness.

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0 Replies
Posted May 16, 2019 by Nawshad Khadaroo, CCP
How has CIC added value to your career? Post your answer for a chance to win two tickets to the May 23rd Blue Jays v/s Red Sox game.
Last reply on May 18, 2019 by Divya Lakshminarasappa
1 Reply
Posted November 27, 2018 by Andre R. Brooker
Please reply to this post to ask a question or start your own discussion. 
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Last reply on December 13, 2018 by Ashley Koester, CCP
1 Reply
Posted September 11, 2017 by Andre R. Brooker
As the retail landscape changes and bankruptcies of brink and mortar stores are becoming ever more present, what reforms would you like to see in place that would fairly protect both the interest of employees and creditors of companies that file for bankruptcy or protection?
pexels-photo-207489 x2.png
Last reply on September 11, 2017 by Nawshad Khadaroo, CCP
1 Reply
Posted June 30, 2017 by Andre R. Brooker

Being able to offer highly flexible payment terms can give you a competitive edge with your
international customers. But if your terms are too lenient, you may increase your risk of payment
problems that could undermine your cash flow. This paper examines how you can choose payment
strategies that will attract overseas buyers while keeping your financial risks under control.

Read the full whitepaper

0 Replies
Posted September 27, 2016 by Nawshad Khadaroo, CCP
Can a creditor take security on intellectual property?
Last reply on September 27, 2016 by Tony Lengua, CCP, CCE, CICP, CRM
1 Reply
Posted August 17, 2016 by Nawshad Khadaroo, CCP
Has anyone ever used a "negative pledge letter security? Banks' have used this in the past in the event that a customer won't sign over security. This letter essentially outlines what they agree to and should they fail to follow through, you can then put security in place. Seems a little odd.  Please share your thoughts on this.
Last reply on October 29, 2019 by Ruth Storms, CCP
4 Replies
Posted August 15, 2016 by Andre R. Brooker
A stock buyback affects a company's credit rating when it uses debt to repurchase its own shares.
Last reply on August 27, 2016 by Sean Raymond Monaghan, CCP,CMA
2 Replies


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