Insert a clause in the credit application
I have advised many of my clients to insert a clause in the credit application stipulating that the owners of corporations undertake to personally pay/ guarantee any balances the company has to turn over to a collection agency or file a court claim on. Not everyone can do this but it is something that should be seriously considered.
Of course you also want references from other suppliers. Get the name and position of person giving you the information . How long they have been doing business with the applicant, at what volume and what sort of payment history do they have. Were there late payments, bounced checks, delinquent accounts?
Your prospective client will often cherry pick who they give you as a reference resulting in a picture that might not be completely accurate. So here are a few additional steps you can take.
Call around to colleagues or suppliers in the industry that you may know and see if they have any information they might be willing to share. You will be surprised how helpful others who have been in business for a while can be. Everyone gets burned sometime and the smart businessman knows that if he looks out for you someday you will be there for him.
Companies who are in the business of selling credit reports are another good place to call. A word of caution though, these companies do not always have complete or accurate histories of commercial debtors so don’t take a credit report with no bad marks on it as a guaranty there are no outstanding issues.
All of this checking can be time consuming so the amount of investigating you do should be commensurate with the risk you are contemplating taking and the size of the order.
Now you are ready to provide your goods and services knowing you have covered all the bases and minimized your exposure to the risk of bad debts and not getting paid.
Next: Using documents that help protect you
