Read this Before You Grant Credit to a Client

Before you grant credit to your clients take the following basic steps.

Do this even with current clients if you have not done it yet; especially if they have been paying you in cash.

Cash is good. They used to say cash is king but it could come back to bite you if that account that was so good for years suddenly goes sideways and you are owed monies.

Whether it is a company or your customer is a consumer:

  • Get copies of photo ID (preferably two)
  • Get their home as well as the business address.

Why do you need this? (they may ask)

Because if you give them credit you want to protect yourself.

Get a copy of a VOID check – it can be very useful down the road.

Lots of folks communicate by text now. It’s fast and It’s convenient. But it is not great should you have collection problems later on.

If you love text, use that by all means BUT use email for all the important stuff. For example: when you ask for payment. Scope of work or size of the order. Changes to orders or work. You get the idea.

And NEVER rely on just a phone call for anything important

Being careful with new clients / customers and the “gift” of cash

We all appreciate getting new business and we especially appreciate getting new clients. We might also
appreciate customers that pay in cash. That said, these days it is more important than ever to exercise
caution when extending credit.
If you have a cash and carry business or require paymen in advancet you can skip this post.
For those of us who are in a situation where we need to extend credit to stay competitive, I bring you
this tale of caution
One of our clients, a very busy manufacturer, had a new customer place a substantial order which they
then came to his premises to pick up. Everything went very smoothly, they paid for the order in cash and
took the material.
They were not asked to fill out a credit application nor to provide any further information then was
found in their email signature / letterhead.
Over the next 6 weeks they placed 6 more orders – all by email – which were filled and were to be
picked up when ready.
Though the orders were filled as they were received they were not picked up until the end of week 6
when the customer rushed in and took them all at oncebut did not pay for them, leaving a $25,000.00
balance.
With all of the activity in the warehouse no one noticed that this customer had no account set up.
Follow-up calls and emails went unanswered for months and our office had to be retained to collect the
monies owed.
Leaving aside the warehouse slip-up, what is needed with new clients is complete information on the
company, its principals, bank information and history.
At the end of the day a client should have a proven track record before you grant credit.
If you’re not comfortable granting credit you have the option of doing business on a COD basis or asking
for the owners to sign a personal guaranty.

How the system you set up can minimize collection problems

Getting new business, whether from an established client or a new customer, is the goal of every business, but how you process that business can mean the difference between growth and painful cashflow problems.


We all know what we need to do but we often get so busy that we start taking shortcuts that can come back to haunt us. Don’t allow customers to rush you into skipping steps that will not only protect you but your customer as well.

Take the following advice and you will avoid 90% of your collection problems
Step 1 – send a written quote
Step 2 – make sure your customer signs off on it or confirms approval in writing
Step 3- have a written agreement that nicludes these important basics:
a) Who are the parties
b) what is the scope of the work
c) what is the total cost before tax
d) if there is a deadline, what is it?
e) when and how does this have to be paid for?
f) what happens if payment is late? Will there be interest charged?
g) What happens if there’s a cancellation or a return?
h) is there a personal guarantor or indemnifier?
Step 4 – (if applicable ) ensure all changes and/or extras requested are confirmed in writing including
their additional costs .
Step 5 – Recap any problem that arises and their resolution in an email to your client / customer.

How soon should you prepare for success in court?

I highly recommend avoiding going to court if you can.
But just in case a court action cannot be avoided you should be prepared.
How soon should you prepare?
Even before you know there is a problem.
By having the right intake and processing systems in place your job will be more than half done should you ever be in a situation where you have to file a claim in court.

Important Step Before You File a Claim

A heads up to all of you consumers and business people who are owed money and have taken it upon themselves to start a court action on their own.
This is certainly the least expensive way to go from a dollar and cents point of view as long as you have got the time needed to invest in doing it properly. As the old expression says “the devil is in the details” and this is never truer than when you are drafting any kind of legal document or court claim.

Once again today I had to tell a prospective client that her judgment, which she finally obtained after much effort, was unenforceable because she did not have the proper name of the debtor on the judgment. It also explains why the judgment debtor has been ignoring her for almost four years.

So make sure you have the proper legal name of the company and that you have added any other parties that might be liable for your damages.
90% of your success in court lies in your preparation.