Financials at your fingertips: Crafting the request
- CreditKernel Team
- Sep 30, 2023
- 5 min read
Updated: Feb 5
Financial statements provide an objective overview of the company's financial health, reducing reliance on self-reported data or personal bias. By requesting the right financial documents—such as income statements, balance sheets, and cash flow statements—you can evaluate repayment capacity, identify potential risks, and benchmark performance against industry peers.
Article Topics
Why Request Financial Statements
Aligning Risk Appetite with Requesting Financial Statements
Financial Statement Sample Letter
Benefits of gathering financial statements
Financial statements play an important role in analyzing the current level and trend of profitability, leverage, and liquidity. A well-structured financial request not only streamlines the underwriting process but also ensures transparency and partnership with counterparties.
Financial analysis helps answer two important risk management questions.
Who are your high-risk customers?
Are you being compensated appropriately to achieve an expected return?
There are three financial statements that present a company's current and past financial performance. Each statement brings its own unique value to credit analysis.
Balance Sheet: Evaluates what a company owns (assets), what is owes (liabilities), and the ownership value (equity).
Income Statement: States revenue, expenses, and profit or loss of a company during a specific period, typically annually or quarterly.
Cash Flow Statement: Provides a detailed description of the cash inflow and outflow over a specific period.
As financial risk is an inherent aspect of all business activities, it is suggested for your company to establish a specific threshold for when to request financial statements, such as dollar amount, geography, new or existing counterparty, and/or payment terms.
Once this threshold is reached, and before finalizing any agreements, you should request and begin to spread the financial statements. You are then tasked with completing the credit assessment to make a recommendation on whether to absorb, mitigate, or avoid the risks altogether.
Aligning Risk Appetite when Requesting Financial Statements
Risk appetite refers to the level of risk your business is willing to accept in pursuit of its goals. It is a broadly based statements that guides the organization's approach towards taking on, managing, and mitigating risk.
Risk appetite is company specific and determined by various factors such as the company's operational objectives, risk capacity (the total amount of risk your organization can handle without putting its survival at stake), regulatory environment, market conditions, financial goals.
Defining your company's risk appetite helps align risk-taking activities to an overall strategy, ensuring that all decisions are made within an acceptable risk-reward framework.
A simple method for determining who to request financial statements from is the 80/20 rule, or Pareto Principle, states that roughly 80% of outcomes stem from 20% of inputs.
In credit management, this means a small percentage of customers or accounts often drive the majority of your risk, revenue, or workload. For example, 20% of your counterparties may contribute to 80% of your total credit exposure, or a similar percentage might account for the bulk of delinquencies or defaults.
Recognizing this pattern allows credit managers to prioritize their efforts on the most impactful accounts—whether by strengthening relationships with top-performing customers or focusing risk mitigation on higher-risk segments.
By applying the 80/20 rule, you can allocate time and resources more efficiently, ensuring maximum value while minimizing unnecessary effort.
Setting a dollar amount threshold is one clear and straightforward method that can be used to determine when to request financial statements. For example, if the loan amount or credit limit exceeds $150,000, financial statements will be requested.
Once the dollar threshold is determined, analyze your current portfolio to understand the number of counterparties that meet your criteria.
For example, if your company has 800 customers:
Sort the customer list by largest to smallest sales dollars, credit limit, or expected credit loss.
The 20% rule places the cutoff at number 160, or 800 x 20% = 160 customers.
At a minimum, your team would be requesting financial statements for those 160 customers.
It is important to note that the percentages of 80 and 20 are not fixed. It is an experiment that businesses can use to focus the most value-added tasks.
Financial Statement Request Sample Letters
When it comes to making informed credit decisions, few tools are as valuable as reviewing a company’s financial statements—certainly more so than relying solely on third-party payment behavior. It is through financial statements that analysts can evaluate profitability, access capacity to service debt, and benchmark financial ratios against industry standards.
A well-crafted financial statement request letter saves time and ensures requests are consistent and professional. It also helps in standardizing the information you receive, making the subsequent analysis more streamlined and efficient.
Timing of Request: Understand it will take time for the customer to gather the documents. The request should be sent 60-90 days prior to the credit review date.
Defining the Documents: Be specific about the financial documents you require. Typically, these would include the income statement, the balance sheet, and cash flow statements.
Politeness and Clarity: Your request is not a demand. Always maintain a courteous tone. Clearly state why you need the documents and reassure the recipient that the information will be confidential and uses solely for credit assessment purposes.
Setting a Deadline: Including a reasonable deadline is key. This expresses the urgency of your request and sets expectations, helping expedite the process.
Here are two request letters on how to request financial statements:
Financial Statement Request Template 1
Dear [Counterparty Name],
I hope this message finds you well.
I am writing to request the most recent financial statements as part of our ongoing credit assessment process. Specifically, we are interested in your income statement, balance sheet, and cash flow statement.
These documents will help us conduct a comprehensive review of your credit status in line with our financial policies and risk management guidelines. We assure you that any information provided will be used exclusively for this purpose and will be treated with the highest level of confidentiality.
Can you kindly provide these documents by [insert date]?
Should you have any questions or concerns, please let me know. Thank you in advance for your prompt attention to this request.
Best Regards,
[Your Name]
[Your Title]
[Your Contact Information]
Financial Statement Request Template 2
Dear [Counterparty Name],
As part of our routine credit assessment process, we kindly request your most recent financial statements. Please rest assured that all information provided will be treated with the utmost confidentiality. Specifically, we would appreciate it if you could share the following documents:
Income Statement
Balance Sheet
Cash Flow Statement
Notes
We kindly ask that you submit the requested documents by [insert date, typically two to three weeks from today].
Should you have any questions or require further clarification, please don’t hesitate to reach out.
Thank you for your prompt attention to this matter. We value our partnership and appreciate your cooperation.
Best regards,
[Your Name]
[Your Title]
[Your Contact Information]
Final Thoughts
Credit analysts should prioritize their efforts on higher-risk, high-value, and strategically significant counterparties. To optimize time and resources, it is important to establish clear thresholds for requesting financial statements, ensuring efforts are focused where they have the greatest impact.
See how we prioritize high-risk, high-limit deals while automating decisions for lower-risk, lower-limit decisions.
Frequently Asked Questions
Is it normal to send a financial statement request letter?
Yes, it is a common business practice to request financial statements to perform due diligence on sizeable and strategic customers. The "size" and "strategy" is depended on your company's risk appetite.
What is the concept of risk appetite?
Risk appetite in refers to the level of risk a business is willing to accept in pursuit of it goals.
Are audited financial statements required?
Audited statements are preferred as they have been reviewed by an independent third party for accuracy. However, depending on the credit amount and risk, unaudited statements might be accepted.