Have you ever wandered around in the darkness, in a new house, or a new place, looking for the bathroom, only to stub your toe on some object that you didn’t see coming? This is what it feels like for companies that have not taken the time to create a strong credit and collection policy. Instead of wandering around in the dark, let PICB help you flip the switch and
SEE THE LIGHT!
Credit Applications are your first chance to analyze your customers Risk v. Reward. All credit applications should require information above and beyond an address. One of the most common mistakes vendors make is not asking for enough information on the customer’s applications. Have a space on the application for affiliated companies, landlord information (if rented) for verification of address, trade references and bank account information for the purpose of verification, but above all else: MAKE SURE THE POTENTIAL CUSTOMER PROVIDES THEIR FEDERAL TAX ID! Only with the FEIN can you verify, with certainty, the customer you are entering into an agreement with.
Once your customer has provided you with details of their operation it is now time to investigate. All states provide corporate entity information, usually through the secretary of state, for the purpose of researching companies for their corporate status, principals, and length of time in business. Verify that your customer is a viable entity to enter into a credit agreement with. Check with the city and the county to verify licensing requirements. Research the principals to determine if there are affiliates. Call the state’s Department of Revenue to verify the Federal Tax ID #. Check for court records through the county and state. Contact the recorder’s office for tax liens, mortgages, and deeds. In most states, the Secretary of State’s office is responsible for providing and maintaining secured liens (UCC Filings), and the information is available to the public.
GET IT IN WRITING
This one is simple. Keep yourself out of the darkness by requiring signed documentation on any and all paperwork. The credit policy should have an authorized signature from your potential customer, at the very least, for the purpose of bank verification as most banks will not release information without a signature. Any credit agreement, post application, must be more than a handshake and a verbal commitment. Get the terms of the agreement in writing and Get Paid!
HAVE A PLAN READY
What is your company going to do when an account goes delinquent? What steps are taken before the account is sent to collections. Which accounts should be pursued through the courts and which accounts need to be written off as bad debt. What happens when a settlement is offered. How does your company deal with a customer filing bankruptcy. Never be caught in the dark looking for a bathroom. HAVE A PLAN!
TRUST YOUR POLICY
If you’ve taken the time to create a comprehensive credit application, investigated the information, have signed agreements, and know what to do in the event of default, you can trust your policy to work for you. Extending credit does not need to be scary. Don’t be afraid to flip the switch and turn on the LIGHT!
If your company needs Collections, Credit Risk Analysis, Credit Policy forms, or advice on how best to proceed through litigation, contact PICB and never wander in the dark again!.
SHARE WITH US YOUR MOMENT OF CLARITY
What credit situation made you see the LIGHT ?
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Hi Andrea, The letter you helped us draft to our customer who was exhibiting a slow-down in payments worked fine.
Based on the information you were able to obtain we asked the customer to pay COD, and they did for the new order.
They do not owe us any money and will paying COD for future orders. Accounts payable told our A/R person that they were sorry about the big delay in payments. They also asked the buyer to place MORE smaller orders versus one large order in the future. Thought I would send you feedback as to how everything work out. Thanks for your help!