Taking Precautions

The news seems to be all doom and gloom at the moment with the ‘credit crunch’ tightening its hold. Many businesses are reporting problems with what were once their most trusted and reliable customers and their aged debtor reports are growing by the month.

It’s a worrying time at the moment for many businesses with cashflow high on the agenda, so what about those new, potential customers, eager to do business. Should they be turned away? Should you do business with them? Are they a risk?

Good debt recovery is always important but getting it right at the beginning can vastly improve the chances of receiving payment. Any business looking at a new customer would do well to consider the following:

• Who is your customer?
  Seems simple – but are they a limited company? A sole trader? A partnership? Getting this wrong can have wide ranging implications if they don’t pay.
• Can you identify Your Customer?
  Can they produce evidence of who they are? Where they trade?
• Credit check your customer
  Can your customer pay you? Credit checking is vital and there are many services available for this purpose. Some of these services offer an opinion on the ability of the potential customer to pay. -
• Security
  What security can the customer offer you? Do you have a ‘retention of title clause’ in your contract i.e. can you get the goods back if your customer doesn’t pay? Can you identify your goods? Can directors offer any other guarantees, enforceable in the event of non payment?
• Visits
  If possible, go and see your customer. Have a look at their premises, meet their staff. Do they appear busy? Do you have confidence in ability of the directors? Are they a new company perhaps spending a little too much on company cars?!
• If in doubt…….
  Trust your instincts. Ask for payment up front if necessary.

But more importantly, keep making these checks. Something may change when you least expect it.

Good cashflow is vital and the credit crunch should not stop relationships forged with valuable new customers. However, be diligent, ask questions and don’t be afraid to say no.

Should the worse happen and your customer does not pay, act promptly or if required, take professional advice.

Published 10/04/2008.