When you sell goods and services to a customer, you should do what you can in your due diligence to find out if the customer is good for the money.
In some businesses this is easier said than done. So you have to look at how you offer credit to your customers. Are you satisfied you are closing some of the gaps on your knowledge about the customer, to ensure that when you effectively “lend them money” that you are satisfied you are going to get it back?
One of the easiest ways to close any gaps in your knowledge is to have a comprehensive customer application form. This can now be created online so that the customer fills in the necessary information on your website, or just using their phone.
In this application form you are trying to find out whether the customer can pay you, and whether you can verify them as a proper person in law. They may be an individual, sole trader, partnership, company, or an unincorporated association, such as the local rugby club.
For sole traders and partners, ask them for full information about their income and expenses where you can. Find out if they own their own property and whether they have a salary or are self-employed. This will help you ultimately determine how to enforce your judgment against them. We encourage you to look at every customer as potentially defaulting on you, so there are no surprises!
For partnerships and companies, it becomes easier to verify that they do actually exist and are trading. Companies have to go through quite strict compliance in terms of filing accounts, and having a registered number. So use Companies House website, and use credit reports to verify exactly who you are trading with.
Also do some practical things like searching social media, and telephoning the company number and seeing if somebody answers. In addition, look at the company address on Google maps or street maps, which will give you an idea whether the company is really just trading from a terraced house, or if the address is just a demolition site (we have had that in the past)!
All in all, reassure yourself that the customer that you are extending credit to is good for the money, and you know enough about them to be comfortable with your decision to extend credit.
If you are not comfortable, then extend less credit or ask for payment upfront, but don’t extend thousands and thousands of pounds to a company or entity that you haven’t checked out.
If you need help in making these checks to verify who your customers are, Shergroup has a service for this through its collections team, so don’t worry about being stuck on where to go for a service. Use your credit control team to run reports on your entire Create Sales ledger to know what debts are the longest outstanding. Build a process on how to tackle these debts once they get to a certain stage in your process.
For example, at 45 days you may decide that credit control has come to an end and you want to escalate it to an outside agency for them to handle the collection process. Or you may want to escalate it to a legal claim by issuing a claim through Money Claim Online or using solicitors. But for each customer on your ledger, and for each invoice on your ledger, you should have a strategy. If you are not sure what strategy to adopt, we can help you.