Explain the 4 C’s of credit letter?


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A business- man while thinking of giving credit has to apply his mind to the 4 C’s of credit, which are as follows:

1)      Circumstances

Are the conditions or circumstances in the market favourable to the giving of credit. If it is the festival season should he give credit and lock up his money and lose his other business where he has to invest his money.

 2)      Capital

By giving credit he has think how much of his capital will be blocked and how much that blockage might affect his business.

3)      Capacity

He has to think that does the buyer has the capacity to pay the money even at a future date. He even has to see what the reports say about his financial position.

4)      Character

The businessman that even if the buyer has the capacity to pay the money even at a future date is he honest and trustworthy in his dealings or is he a person who will not pay because he likes to run the business with other peoples money.

 


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