Guy owns a lumber yard working directly with home builders and contractors. Margie, a contractor new to the area, wants to set up a credit account with the lumber yard. She has a good history of successful and profitable projects. What questions should Guy ask in evaluating the Margie's credit status? Relate to the 5 C's of credit.
What will be an ideal response?
- Can Margie pay as promised? Since Margie is a new contractor, Guy must decide whether or not he thinks she will be able to have the funds needed to pay his business credit bill. How is Margie's character?
- Will Margie pay? Margie is a new customer to Guy's company. He needs to decide if he will be able to trust her to stay on track with her financial commitment. How is Margie's capacity?
- If so, when will Margie pay? Guy needs to consider how soon Margie will be able to repay the company. Will Margie have the capital? Will conditions impact payment?
- If not, can Margie be forced to pay? If Margie refuses to pay her bill, Guy needs to consider what other options he has to force payment. Does Margie have collateral that could be used in lieu of payment?
In short, Guy needs to consider Margie in relation to the 5 C's of credit: character, capacity, capital, conditions and collateral.
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