Protect Yourself by Knowing Your Customers' Credit
Protect Yourself by Knowing Your Customers' Credit
Protect Yourself by Knowing Your Customers Credit - To learn more about this author, visit Marijo McCarthy's Website.
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Sad to say, I spend a fair amount of time these days trying to help clients get paid. (Of course, my strongest tool is a solid relationship with a smart collection lawyer!)
There is nothing more frustrating to a small business owner who provides superior services than having to pursue the deadbeat customer who refuses to pay when the bill comes due.
There is nothing more frustrating to a small business owner who provides superior services than having to pursue the deadbeat customer who refuses to pay when the bill comes due.
Maybe you've experienced it yourself and have spent months in pursuit, believing that the stories are true: They really are waiting for a customer to pay them; they really are going to get their bank line of credit extended; they really are going to partner with that investor; the dog really did eat their homework!
In my experience, it is best to get on top of a slow pay customer right away and monitor that customer carefully. Sometimes, you can cut your losses — getting involved immediately can often reverse a potentially bad situation before it gets worse. [Remember the adage about the squeaky wheel? It has more than a ring of truth!]
But the truth is, by the time you're in pursuit of a non-paying customer, you're already in a defensive position. The best time for action is before you fall behind in the first place. So let's rewind and talk about what you could do differently when a new customer walks in the door.
- First, let's understand that when you allow a new, unknown customer to have your product or service without an immediate payment in return, you are extending credit and therefore taking a risk. It's not necessarily a mistake to do so — this is business as usual for many of us and sending a bill for services rendered at the end of the month is fine. But it's a risk all the same. Which means…
- Second, if you are going to extend credit to a potential customer, you should first evaluate them as a credit risk (particularly if your product carries a four or five figure price tag on a monthly basis).
Have you asked for a credit reference? Have you sent the customer a credit application? Do you have a bank or trade reference? Do you know anything financially substantive at all about the company before you deliver… in advance of payment… your product? You get the picture.
- Third, make sure you have advised them… in writing… of your payment policy. After all, this is a two-way transaction we're considering. Does your credit application state your terms? Is there interest due on overdue accounts? Do you specify collection costs, if you have to pursue them? Do you ask for a personal signature on new accounts?
Believe me, all of these things will come in handy if you find yourself in need of pursuing legal action.
So remember, while this isn't rocket science, keeping your slow and non-payers at a minimum does require some preparation and diligence. In the final analysis, getting your ducks in a row at the very beginning may save you time, money and a large measure of frustration!
P.S. If you're not currently using a credit application with new customers, you'll find detailed samples out there in cyberspace (you Google everything else, don't you?), which your attorney can review for compliance with state law.
P.S. If you're not currently using a credit application with new customers, you'll find detailed samples out there in cyberspace (you Google everything else, don't you?), which your attorney can review for compliance with state law.
Also, if you already have helpful credit and collection suggestions that you would like to share with your colleagues, please send them to me and, with permission to reprint your ideas, I will publish them in the next issue. Your colleagues will thank you!
Protect Yourself by Knowing Your Customers Credit - To learn more about this author, visit Marijo McCarthy's Website.
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