Where does the reading stop?
How banks read you describes the order a credit-trained reader goes through your business in. This walks your own numbers through that order and tells you which question your file meets first — before the bank does.
NOTHING YOU TYPE LEAVES THIS PAGE. THE NUMBERS ARE READ IN YOUR BROWSER AND SENT NOWHERE.
// WHAT THIS TOOL DOES
The Five-Step Read takes six numbers from your own business and reads them the way a credit desk reads a working capital request, before you send one. It turns your debtor, stock and supplier days into a cash conversion cycle, turns the cycle into the working capital a business of your size carries, and sets the limit you want against it. Then it walks the file through the five questions How Banks Read You lists, in the order a credit reader asks them, and stops where your file meets its first one — whether the amount matches the arithmetic, whether the cycle has changed shape, or whether one customer can decide your outcome. For each question it says what the reader on the other side will see, and what to do about it before the meeting. It takes about two minutes, and it needs no financial statements beyond the ones you already have.
// WHAT IT DOES NOT DO
It does not decide anything, and it does not predict what a bank will decide. A credit desk reads far more than six numbers — profit and whether it became cash, cover, leverage, security, the owners, the account conduct, the industry — and it decides with a person, not a formula. The tool reads none of those, because six numbers cannot carry them. Two of the five questions cannot be computed from numbers at all: what repays the facility if trading does not, and whether the bank hears each difficulty from you first. The tool marks both as yours to answer rather than pretending to score them. It does not price a facility, set a covenant or compare lenders, and it is not financial advice. And it keeps nothing: the numbers are read in your browser and sent nowhere.
// WHERE THE SIX NUMBERS COME FROM
The limit you want · the total working capital limit, not the increase
Days customers take · receivables at year end ÷ revenue × 365
Days stock sits · stock ÷ cost of sales × 365 · blank for a service business
Days you take to pay · payables ÷ cost of sales × 365
Largest customer · its sales ÷ your revenue
Your cycle against last year · the same three day counts on last year's balance sheet
The day counts are the standard ones a lender uses, and the tool turns them into dollars the quick way — the cycle in days, over 365, times revenue — that the worked cash conversion cycle example describes. If you do not know whether your cycle is longer than last year, say so; the tool will tell you why the bank will want to know, and thirty minutes with two balance sheets will tell you the answer.
// WHO IT IS FOR
The owner, founder or finance lead of a business that is about to ask its bank for a working capital facility, a larger limit, or a renewal — before the application goes in, or before the annual review. It is the borrower's side of a reading the bank does anyway, and its whole point is timing: a difficult number you bring is context, the same number found in a schedule is a question about what else has not been mentioned. Bankers who want the same discipline pointed the other way have the Three Diagnostics.
// QUESTIONS PEOPLE ASK
- Is the Five-Step Read a credit score?
- No. It does not predict whether a bank will lend, and it does not score your business. It takes six numbers, walks them through the order a credit reader asks questions in, and tells you which question your file meets first. A bank reads far more than six numbers — profit, cover, leverage, security, your owners, your account conduct — and decides with a person, not a formula. What the tool gives you is the first question, early enough to answer it before the meeting.
- Does the Five-Step Read store my numbers?
- No. The numbers are read in your browser and sent nowhere: there is no account to create, no form submission, and nothing recorded against you, even if you are a signed-in member. Close the page and the numbers are gone. That is a design rule rather than a setting — they are your own business's figures, the one kind of number this site has promised never to hold.
- Why does the reading stop at the first problem rather than the worst one?
- Because that is how the reading happens. A credit reader asks the questions in an order, and the first one your file cannot answer is the one the meeting will start on, whatever comes later. A request sized beyond what the business's cycle supports is questioned before anyone reaches the customer list, however concentrated the customer list is. The tool still reads every question below the stop; it only reports where the conversation will begin.
- What should I do if my file snags at the first step?
- Look at the gap between the limit you want and what your cash conversion cycle supports at your size, and decide whether the difference is growth you can evidence, a cycle that has lengthened, or a need that is not working capital at all. Each has a different answer — a forecast, an explanation of the days, or a different facility — and each is better brought by you than found by the bank. Preparing an Application and Line of Credit vs Term Loan are the two pages to read next.
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED