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How to protect yourself from bad debt | Part 3 | Strengthening your position

Extra steps to really strengthen your position

In addition to the measures that we’ve already discussed in Part 2, you may want to request the following:

Applicant’s personal guaranty(s) with spouses if possible. Many prospects might balk at this but it is your right to ask for it in return for granting credit. This way if the company closes down for any reason you can look to the owners/directors for payment.

I have had many of our clients (accounting firms for instance) put this in their engagement letter or agreement because they often deal with clients that have multiple companies. After awhile the work begins to snowball and often the service provider is directed to bill a company that may not have any assets or that suddenly has wound down leaving many hours of work unpaid for.

Another piece of information I highly recommend requesting is the SIN # and date of birth of the owner/director and authorization to pull personal credit report.

Agreement for you to verify the information on application from external sources (banks, trade references, credit bureaus, etc.)

Last but not least is the signature of the person, his name spelled out underneath (good luck reading most signatures) what position applicant has with company and that he/she is authorized to bind the company/corporation.

What if the prospect refuses to supply the information requested?

Sometimes prospective clients may start complaining about the application or specific parts of the application. If that happens you could rely on the old “This is our company policy for any shipments /service that has not been paid for “

If you are concerned that you might lose the business and you assess the prospect as being credit worthy you might loosen the requirements on such things as a personal credit report or guarantee .

Some might not want to pay interest on past due accounts. You could then change it to ‘ interest will be charged if it has to be turned over to a third party for collections.’

It is also a good idea to get them to initial those clauses you really want enforceable such as their guarantee, agreement to pay collection fees etc.

There is always a middle ground to be found, but remember the more you have on your credit application the easier it will be to collect your money should something go wrong.

What else should I do?

I recommend updating your client’s credit and banking information once a year or certainly every two years. Problems can come from new clients but sometimes even from long standing clients.

Is there a new CEO?

Has their bank changed?

Has the company been sold?

Has the company merged with another company or just changed its name?

Are there associated companies that use your product/services but are not the ones issuing purchase orders?

Another helpful and fairly simple thing to do is to make a copy of your customer‘s check when it comes in and pop it in their file for your records. It may come in very handy in the future.

Do it at least once or twice a year with regular customers.