Why and How to Evaluate the Creditworthiness of SMEs’ Business Partners

Abstract

In addition to external ratings, an increasing number of enterprises are evaluating creditworthiness by themselves, especially when it comes to short-term decisions. This article presents a method for developing internal ratings to best select among the business partners of a firm. As this is a very complex goal, the Analytic Hierarchy Process is applied, in which the problem is approached step by step. Managers’ and experts’ judgements are taken into consideration when structuring the problem. Since qualitative factors come into play, special attention is given to determining not only quantitative but also qualitative criteria. Their importance is also assessed. The applicability of this method (especially in small and medium-sized enterprises) is discussed and introduced via a practical case from a small Slovenian enterprise.