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How to protect yourself from bad debt | Part 2 | Know your client

Last week we discussed what you should be looking at before granting credit (see last week’s post) and that certain steps need to be taken. This week we answer the question –

What are those steps?

Well for starters you want information. So back to where we started from; have your prospect fill out a credit application. It won’t guarantee you’ll get paid but it will make it much easier for whoever you use to collect your money to do a more effective job.

Think of what a bank asks you for when you open an account or take out a loan. They are selling you money and they want to know all about you. Your prospects may not want to answer that many questions but you should get the basics.

There are many different types of credit applications available commercially. Pick one that suits your company best. Are you dealing solely with businesses or do you service consumers? Perhaps you do both. Whatever you do your credit application at a minimum should have:

Legal Name and address of the prospect

Operating name (if different) Name and address of any parent company

All contact information: I e: phone #’s, e-mail addresses etc.

How long in business

Names of owners/principals/directors/officers

Bank references -Name of Bank, Branch address +copy of void cheque

Three Trade references – with name of person and position at company

Your terms of payment

Applicant’s agreement to payment terms, to interest on past-due amounts

and to pay for any legal and collection costs

Next week…some additional steps to strengthen your position and further lessen your risk