What is the purpose of screening debtors in a business?

The purpose of screening debtors in a business is primarily to check customers' credit eligibility for future lending. This process involves assessing the creditworthiness of potential customers before extending credit. By conducting a thorough review of a debtor's financial history, payment behaviors, and overall financial stability, a business can reduce the risk of default and ensure that they are extending credit only to those individuals or organizations capable of fulfilling their financial obligations.

This practice not only protects the business from potential losses but also helps in managing cash flow effectively. Understanding the credit risk associated with customers allows a business to make informed decisions about credit terms and payment plans, thus maintaining healthy relationships with customers while safeguarding the company’s financial interests.