Tip: Top 6 Tips On Obtaining Financial Statements from Your Customers

Do you have any suggestions for getting financial statements from my customers? This is a constant struggle for me.

Sincerely,

- In the Dark in Des Moines

Dear In the Dark:

You're not alone in this struggle. You're with a modest-sized company, but I can assure you that even most of the biggest companies grapple with this challenge all the time. Only a very few companies-those possessing some kind of tremendous leverage-can get financial statements all the time. Most have to accept much less than their ideal. For some great advice on this month's question, we turned to Cindy Moorhead, a credit manager-turned CPA.

Here are Moorhead's recommendations:

1. Don't be afraid to ask.

Look at it in this light. Depending on the dollars, would a banker ask for financial information if he were extending a loan for this amount to your customer? If yes, you have a right to at least ask for financial statements. They also have a right to tell you they will not provide them. Just don't be afraid to ask the question.

2. Send standard letters as a matter of credit department policy.

Moorhead recommends sending a letter annually to each customer for which you don't have current financial statements. The letter should state:

"We are in the process of updating our credit files and find we do not have current financial statements on your company. Please send us your most current annual report so we may update our records."

This is a very non-threatening request for updated financials. Don't wait until your customer has payment problems to ask for financials.

3. Persistence Pays: Develop a follow-up system for obtaining financial statements.

When Moorhead was a credit manager, she would send out the "we are updating our credit files" letter and make sure she followed up in a month. Thirty days later, if she didn't have a financial statement yet, she would make a copy of the letter and write the current date and "SECOND REQUEST" at the top of the copy, and then flag it again for follow-up.

Many customers will "can" the first request they receive, and possibly the second request, but, by the third request, they are tired of hearing from you and will send the statement. If you have a systematic follow-up approach, it will take very little time to follow-up on your requests. Don't drop the follow-up ball.

4. Call the customer.

If your requests go unheeded, simply give them a friendly call. They may tell you their new annual report is due out in another month. If so, tell them you will follow-up in a month and a half and put it back in follow-up. If you don't follow this process, they probably WON'T remember to send you the new report when issued.

5. Use their credit lines as leverage.

If your company adheres to credit lines and your customer needs orders which will put them over their credit line, tell them you would love to be able to increase their line. But, because of your department's credit policy, you need to have justification from the financial statements before doing so.

Or, better yet, if you feel comfortable doing so, tell them you'll release their order this time, but will need financial statements before increasing their line on a permanent basis, so you won't need to be calling them before each order is released. Moorhead says she received many financial statements because the customer didn't want to hear from her prior to releasing each order.

6. Use Special Requests for Leverage.

If your customer is asking for special allowances, tell them you would love to grant their request, but you'll need a financial statement to justify the special allowance.

Some Final Thoughts
You will find that some customers will never give out financial statements. And it's more difficult obtaining financial statements in some industries than in others. But according to Moorhead, she has seen industries where vendors say that customers simply don't give out financial statements in their industry. But then she has spoken with another vendor in the same industry that had developed a successful system for obtaining financial statements based on the logical follow-up system outlined above.