Alieksieienko T.V., Prof. Dr. Yermoshkina O.V.

National Mining University, Ukraine

Improvement and Generalization of the Modern Ways of Managing a Company’s Creditworthiness

Last two decades have seen the movement of the financial sector from a system of direct supervisory control to a more deregulated environment. This however should be followed by new systems of risk control and risk management. New and improved techniques to control the emerging companies are also needed in this process. But because the small companies play a big role in the economy, any measures imposed on them will have a significant impact on the financial market. The key benchmark of any business in this case is its solvency or creditworthiness. Nowadays among scientists there is no clear consensus on the definition of this concept. There are different approaches to the definition of "solvency", which are based on certain criteria, which form the essence of creditworthiness. These include paying ability, legal and financial capacity of the borrower when he is making credit transactions, presence of collateral and borrower's ability to generate cash flows.

Some exact definitions of solvency were collected in the paper by V. Bordug [1]. She analyzed approximately twenty definitions of the concept of "creditworthiness" and combined them according to the certain classification features into groups. Table 1.1 shows one definition per each of the six groups.

Table 1.1.

Creditworthiness of the Borrower

1.	Creditworthiness is a borrower's power to pay his debt in full and on time
2.	Creditworthiness is an ability of a borrower to fully and timely pay both his principle debt and interest
3.	Fulfillment of preconditions for the access to the credit by the borrower and his ability to repay the loan with interest in full and on time
4.	System conditions that determine the ability of companies to attract loans and repay them in the whole amount
5.	Possibilities of economic actors acting in the market to promptly and fully pay their obligations in connection with the unavoidable need of paying back the loan

Source: [1]

Management of solvency can be defined as a set of administrative actions, aimed at the development and implementation of managerial decisions, related to the provision of a company’s sufficient potential to return credit with interest.

For reasoning a company’s aim to manage its creditworthiness, we propose to look at the core objectives of the financial management, which are given in the current economic literature. Both domestic and foreign authors argue that, in the current economic environment, the main goal of the financial management is to maximize the welfare of the owners of businesses in current and future periods, with the help of maximizing its market value [2]. Based on this, we determine that the aim of the management of creditworthiness is to ensure that a company is able to fulfill its obligations to repay the loan with interest. To achieve this goal such problems are needed to be solved [3]: ensuring the adequate liquidity of the assets; provision of an stable level of solvency; provision of an adequate and stable level of the financial stability; provision of the optimal capital structure of the enterprise; identification and application of the most effective types of credit; proper use of credit resources.

Having determined the goal and the main tasks, arising during the process of managing enterprises’ creditworthiness, let’s take a look at the various characteristics of the stages of this process. The process of managing creditworthiness of an enterprise can be in accordance with the following basic steps:

1. Formation of the information base of managing creditworthiness of the company. The process of managing creditworthiness should be provided with the relevant information, which can be grouped into three main groups: a) Legal information; b) Internal information; c) External information.

2. Analysis of creditworthiness of a company in the previous period. This stage involves conduction of such measures: a) Assessment of the dynamics and structure of loans raised in the previous period; b) Determination of the ratio of the loans used by the enterprise for the period of their involvement; c) The structure of specific creditors of a company and their terms of providing various forms and types of credit is determined; d) Assessment of the state of maintenance and the return policies of the loans obtained by the company; e) Assessment of creditworthiness of the company. At this final stage of the analysis, coefficients, included in the methodology for assessing creditworthiness of the company, are calculated.

3. Setting the goals for attracting the loans in the coming period. The main objective of attracting credit resources are: formation of the variable part of the current assets, formation of the investment resources, provision of social and welfare needs of employees, etc.

4. Determination of the limit of borrowing.

5. Evaluation of attracting debt capital from various sources. This assessment is conducted in the context of various forms of debt, which is attracted from external and internal sources by a company. 6. Determination of the ratio of loans, drawn on short and long term basis. 7. Identification of the major lenders. 8. Formation of the effective conditions to attract loans. The most important of these conditions include: term of the loan; interest rate of the loan; conditions of the interest repayments; conditions of the principal repayments.

9. Enforcement of the credit discipline of an enterprise. For this purpose, for the largest loans, a special return fund can be reserved.

On the whole it can be said that the formation of creditworthiness of an enterprise can be a subject to a separate control, namely can have a specific purpose, tasks and the sequence of stages. Structure and characteristics of these stages can later be refined and deepened, depending on the conditions of the economic activity

References

1. Bordug V. "Theoretical Foundations of Assessing the Creditworthiness of the Bank’s Borrower.", Journal of University of Banking of the National Bank of Ukraine № 3, December 2008.

2. Blunk I. O. "Financial Management: A Training Manual." / I. Form. - K.: Elga, 2008. - 722 pp.

3. Korolova-Kazanska O.B "Methodological principles of management of a company’s creditworthiness." Kyiv National University of Trade and Economics University, Kyiv.