How to Assess a Client’s or Supplier’s Solvency

Evaluating the solvency of a client or supplier is one of the most powerful ways to protect your business from financial risk. Whether you are granting payment terms to a new customer or entering into a long-term supply contract, understanding the financial health of your counterpart is essential to safeguarding your cash flow, maintaining stable operations, and preventing costly disputes.

Many companies focus exclusively on external financial data, but the most accurate solvency assessment combines internal observations, behavioural indicators, official business information, and direct financial documentation. This comprehensive guide explores exactly what information you should request from a client or supplier to evaluate their solvency reliably and confidently.

1. Why Solvency Assessment Is a Strategic Priority

Every commercial relationship carries a degree of financial exposure. When you sell on credit, you are effectively financing your client’s operations. When you depend on a supplier for essential components or services, their financial instability can directly jeopardise your own ability to operate.

A solvency assessment enables you to:

• anticipate payment defaults
• protect your business from high-risk clients
• avoid disruptions caused by insolvent suppliers
• negotiate better terms based on verified financial strength
• ensure compliance with internal credit policies
• make informed decisions backed by concrete indicators

In an economic environment where insolvency risks are widespread, companies cannot rely solely on trust or past relationships. A structured solvency assessment is essential — and it starts with gathering the right information.

2. Internal Signals: The First Indicators of Solvency Risk

Before requesting any official documents, your organisation already possesses valuable insights. Internal teams — especially the sales and accounting departments — often detect the earliest warning signs of financial stress. Understanding how to interpret their observations is crucial.

2.1. The Sales Department: Your Most Immediate Source of Solvency Clues

Salespeople interact daily with clients. Their proximity to the field provides them with real-time, qualitative information that can reveal the first symptoms of financial difficulty. These insights are often more timely than financial statements, which may be outdated by the time they are received.

Behavioural and operational indicators to watch for:

Sales representatives can observe numerous details that help assess whether a client or supplier may be struggling. Key indicators include:

• Competitors’ behaviour

If competitors are suddenly reluctant to deal with the same client or appear to tighten their payment terms, this shift often reflects concerns over the client’s ability to pay. Competitors’ behaviour is an indirect yet powerful solvency signal.

• The buyer’s attitude and morale

A buyer who appears stressed, hesitant, overly secretive, or unusually aggressive in negotiations may be under internal pressure caused by financial instability.

• Capacity utilisation and machinery activity

A company that operates only a fraction of its equipment or production capacity may be experiencing a decline in orders or cash-flow shortages.

• Reaction to price adjustments

When a solvent business encounters moderate price fluctuations, it typically reacts reasonably. A financially fragile organisation, however, may display disproportionate resistance or urgently request special discounts.

• Labour relations and social climate

Union conflicts, frequent strikes, and tense internal relations often signal operational difficulties that can soon translate into financial trouble.

• Internal and external communication style

Disorganised, inconsistent, or unusually opaque communication can reveal internal dysfunction or crisis management situations.

• Lifestyle and spending habits

The spending behaviour of company leadership can be revealing. Excessive investment in non-essential assets, or conversely, drastic cost-cutting, may indicate financial imbalance.

• Stock management

Chaotic inventory, overstocked warehouses, or insufficient stock for ongoing operations are often symptoms of liquidity problems or failed forecasting.

• Technical unemployment or reduced activity

Reduced working hours or temporary shutdowns of part of the workforce generally indicate a slowdown in business activity — a common precursor to solvency issues.

Why sales observations matter

These indicators often emerge long before financial difficulties appear in official registers or published accounts. Your sales team is therefore a crucial early-warning system for potential insolvency risk.

2.2. The Accounting Department: Payment Behaviour as a Direct Solvency Indicator

While the sales team provides qualitative information, your accounting department handles payment flows and financial interactions, giving it a precise and objective perspective.

• Late payments

Delayed payments are one of the strongest signs of financial trouble. Although procedural or contractual disputes can occasionally justify delays, repeated late payments should always trigger a solvency review.

Businesses in difficulty often rely on delaying tactics, such as:

• creating artificial disputes

• questioning invoices they previously accepted

• requesting repeated clarifications

• refusing to validate documents

Such behaviours often aim solely to postpone payment.

• Delays in the return of commercial instruments

When a company consistently slows down the return of bills of exchange or similar instruments, it often reflects cash-flow shortages. Slow processing is overwhelmingly associated with financial stress rather than administrative changes.

Moreover, businesses facing cash pressure may:

• request extended due dates

• return instruments with unilaterally modified deadlines

• renegotiate payment terms urgently

These actions provide clear evidence of liquidity constraints.

Why accounting data is indispensable

Payment behaviour is one of the most reliable predictors of solvency risk. It reveals real-world financial capacity, not just financial statements that may be outdated or embellished.

3. Essential Data to Request Directly From the Client or Supplier

Once internal signals are evaluated, you must collect official information directly from the business to verify its legal identity, confirm its registration, evaluate its stability, and investigate its ownership structure.

3.1. Requesting Commercial Documents

Commercial documents are an excellent starting point because they provide mandatory legal information that enables verification and identity checks.

Documents may include:

• brochures

• purchase orders

• invoices

• catalogues

• advertising materials

• general correspondence

These documents contain essential identification elements, such as:

Key business identification details to request

• the company’s unique identification number (such as a SIREN in France)

• the registry where the company is legally listed

• the exact registered office address

• legal status and possible liquidation

• business name and legal form

• information about management arrangements (such as lease-management)

• details about support agreements, if any

• mandatory mentions for individual entrepreneurs (EI or EIRL)

These elements allow you to confirm that the company is legally constituted, active, and compliant with disclosure obligations.

3.2. Verifying Information Through the Company Website

If commercial documents are not available, the company’s official website can serve as an alternative source of critical legal information.

A trustworthy and legally compliant business typically displays:

• identification numbers

• registered office address

• legal form

• registry details

• liquidation notices, if applicable

• special mentions for individual entrepreneurs

Missing or inconsistent legal information is often a red flag.

3.3. Requesting the Latest Financial Statements

One of the most important pieces of financial information you can request is the company’s most recent annual financial statements.

What you should ask for

Request the latest approved balance sheet and income statement. These documents can reveal:

• levels of equity

• indebtedness

• short-term liquidity

• cash reserves

• profitability

• working capital situation

In France financial statements are publicly available for most companies. 

Why financial statements matter

They provide a structured picture of the company’s economic performance and financial structure, enabling a deeper and more objective solvency evaluation.

4. Building a Complete Solvency Profile

A proper solvency assessment does not rely on one single piece of information. Instead, it integrates four complementary pillars:

1. Internal behavioural observations

2. Accounting and payment behaviour

3. Official business identity information

4. Financial statements and economic performance

The combination of these elements allows you to form a complete and reliable solvency profile, which supports informed decision-making regarding:

• credit limits

• payment terms

• contract duration

• risk mitigation strategies

• ongoing monitoring

5. Why a Solvency Assessment Protects Your Business

Businesses that adopt a structured solvency assessment process benefit from:

• fewer unpaid invoices

• reduced exposure to risky clients

• stronger contract negotiation leverage

• more reliable supplier relationships

• greater financial stability

• improved credit management performance

Solvency assessment is not an administrative burden — it is a strategic advantage.

Conclusion: The Information You Must Request to Evaluate Solvency Effectively

To assess the solvency of a client or supplier, you must gather and analyse several types of information:

• internal observations from your sales team

• payment behaviours monitored by your accounting department

• official identification details from commercial documents or websites

• the company’s most recent financial statements

Together, these insights allow you to determine whether the business partner is reliable, financially stable, and capable of honouring its commitments.

Solvency assessment is therefore not merely a precaution — it is an essential component of responsible and profitable commercial management.