Key ratio analysis in credit centers are using statistics and metrics to drive decisions on whether or not to grant terms to customers. It helps creditors summarize why these customers do or don’t deserve the terms and whether their numbers provide enough need-to-know information about their financial health. In short, when done properly, key ratio analysis lets creditors know “can customers pay their bills,” says NACM speaker David Osburn, CCRA, of Osburn & Associates LLC.
Analyzing key ratios is an important tool but does not eliminate other fundamental duties of credit professions. As many credit managers and collectors have discovered over the years, just because someone can pay doesn’t mean he or she will pay.
During the 120th Credit Congress & Expo in Las Vegas, Osburn laid out the following five key, basic key ratios:
Cash Flow.… Read the rest