A new customer orders €18,000 worth of goods and asks for thirty days to pay. Do you deliver? Most companies decide on gut feeling and a pleasant phone call. Yet everything you need to know is in documents the customer has filed itself. In five steps you check the creditworthiness of a Belgian customer, for free and in under ten minutes.
Why gut feeling is not enough
An invoice of €18,000 that is never paid costs you, at a ten percent margin, the profit on €180,000 of turnover. That is how much extra you have to sell to make up for one bad payer. Belgian companies write off roughly one percent of their turnover each year in uncollectable invoices, and when a customer goes bankrupt, ordinary suppliers rarely recover more than a few percent.
The good news: every company files its annual accounts with the National Bank of Belgium, the CBE keeps track of its legal status and the Belgian Official Gazette publishes every appointment, resignation and registered office move. Those sources are public. You only need to know where to look.
Step 1: does the company exist, and in what state?
Look up the customer in the company search, by name or VAT number. Check three things before you go further:
- Does the VAT number match the name? Fraudsters like to use the number of an existing, healthy company on their own order form. How to validate a number is explained in checking a Belgian VAT number.
- What is the legal status? "Normal status" is what you want to see. With "dissolution and liquidation", "judicial reorganisation" or "bankruptcy" your research stops here. What those statuses mean exactly is explained in is a Belgian company bankrupt.
- How old is the company? A company incorporated last month has no annual accounts yet. Then you have no figures and you are better off working with an advance payment.
Step 2: equity and the trend
Equity is the buffer between a company's assets and its debts. It is the first figure a credit insurer looks at, and you should do the same. Do not look at one year but at three financial years on the "Key figures" tab:
| What you see | What it means | Assessment |
|---|---|---|
| Positive and rising | The company retains profit and builds reserves | Strong |
| Positive but falling | Losses or dividends are eating the buffer | Monitor |
| Negative | Debts exceed assets | Advance payment only |
Divide equity by the balance sheet total and you have the solvency ratio. Below twenty percent it gets tight; below zero, first read what negative equity means: not every red figure is equally dangerous.
Step 3: is there cash to pay your invoice?
A healthy balance sheet does not pay invoices, cash does. Two figures on the same tab tell you whether the customer can pay your invoice in thirty days:
- Cash at bank: the money in the bank on the balance sheet date. Set it against turnover. A company with €2,000,000 of turnover and €5,000 in the bank lives from day to day.
- Current ratio: current assets divided by short-term debts. Below 1, the company has to pay more in the next twelve months than it collects in the short term. How to read that ratio is in calculating liquidity.
Step 4: how does the customer pay its other suppliers?
You cannot see whether the customer will pay your invoices on time, but you can see how it pays the rest of the world. That sits in supplier credit or DPO: trade payables divided by purchases, times 365 days.
A DPO of 40 to 60 days is normal in Belgium. If it rises at your customer from 45 to 90 days over two financial years, it is stretching its payments because the cash has run out. You then become the next supplier who waits. Jaarrekening.be calculates DSO and DPO for every financial year; the full explanation is in calculating DSO: customer credit and supplier credit.
A second, harder source: the balance sheet line debts relating to taxes, remuneration and social security. If it grows faster than turnover, the company is paying the tax authorities and the NSSO (the social security office) late. Those are the creditors who go to court fastest.
Step 5: signals that appear in no figure
The last check is not about figures but about behaviour. Three things to look at on the "Directors" and "Publications" tabs:
- The filing date of the annual accounts. Annual accounts must be filed within seven months after the financial year. If the latest filing is months late, or missing, the company is usually hiding bad figures. See filing annual accounts: deadline and penalties.
- The directors. Click through to the person. If the managing director has three earlier companies that went bankrupt, you know how this story can end. How to look that up is in finding all mandates of a director.
- Recent publications. A registered office move to a business centre, a series of director resignations or a capital reduction just before your order are classic warning signs. All five are set out in the 5 signs of an approaching bankruptcy.
From check to decision: the credit limit
A check without a decision is a waste of time. Translate what you saw into a maximum outstanding amount and into payment terms. A simple rule of thumb: deliver on credit up to about ten percent of the customer's equity, with a ceiling of one month of turnover. For a customer with €150,000 of equity that is a limit of €15,000; the €18,000 order from the introduction is then partly delivered against an advance payment.
| Profile | Terms |
|---|---|
| Healthy: rising equity, current ratio above 1.2, stable DPO | Normal payment term, limit according to the rule of thumb |
| Doubtful: falling equity or rising DPO | Shorter term, lower limit, retention of title in your terms and conditions |
| Weak: negative equity, late annual accounts or a red signal | Advance payment or payment on delivery, no credit |
The credit limit tool calculates this with the customer's figures, and the company page shows the same limit next to the Health score. How to substantiate that limit and build it into your acceptance policy is explained in setting a customer credit limit.
Keep checking after the first delivery
Most bad debts do not come from new customers but from customers you have known for years and never checked again. Annual accounts are a photo of one day; the new photo comes every year. Follow your customers and you get a notification on a new set of annual accounts, a change of director or a change in legal status, and adjust the limit before the next delivery goes out the door.
In short
- Legal status and VAT number: does the customer exist and is it still active?
- Equity over three years: is the buffer growing or melting?
- Cash and current ratio: is there money to pay you?
- DPO and debts to the tax authorities and the NSSO: is it already paying others late?
- Filing date, directors and publications: are there signals beyond the figures?
Five steps, ten minutes, and you decide on facts instead of on a pleasant conversation. As a supplier, that is the cheapest credit insurance there is.