CREDIT MANAGEMENT
Credit: The Importance
Of Knowing Your
Customer
By Wasilwa Miriongi
A
friend was making a joke the
other day that “Do you know
Mr. Google knows much more
about you than your immediate family
members?”
Now jokes aside, If you have two
friends, John and Paul, both come to you
requesting for refundable Kshs.10,000/=
to sort out a pressing issue. With your
knowledge you may give Paul the amount
but deny John. Maybe the reason is you
know John is unlikely to pay back while
Paul has been honoring his obligations
promptly. This a basic way of knowing
your customer, as friends there is a lot of
information that you get about them like
their income status and habits in general
that will help you determine whether to
lend or deny the credit requested.
I would like to provide a guide that will
explain how to maximize your cash flow
and avoid losses in your business by
making sure that you know your customer
before you agree to do business with them.
Unless you know exactly who you are
trading with, you won’t be able to check
if they are good for the amount of credit
you need to grant and you won’t be able
to commence legal action effectively if it
becomes necessary.
Importance of Knowledge
If you supply goods or services to your
customer and they don’t pay, you should
be able to bring a claim against them to
recover the debt. However, we know that
most of our clients would prefer to avoid
taking legal action if at all possible. Your
customer might try to raise a defense
which will make matters more difficult,
and there is always a risk that, even if a
court orders your customer to pay, they
simply won’t be able to do so.
That is why it is important to be as sure
as you can be at the outset that your
customer can pay and will pay. This guide
explains the number of things that you
can do to make sure that you know your
Once you’ve known your customer and de-
cided on what terms you are happy to do
business with them, that shouldn’t be the
end of the story. It’s important that you
monitor your dealings with customers care-
fully and in particular remember that a
business’s financial position can change
overnight and that you might need to carry
out fresh checks from time to time and con-
tinually monitor your risk levels.
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customer.
Who is your customer?
The first thing to think about is exactly
who your customer is. If you are supplying
to a private individual it should be fairly
clear but when it comes to businesses, the
situation will be more complicated.
If you are supplying to businesses, you
need to know whether that business is a
company, a partnership, a limited liability
partnership, or the business of a sole
trader. Ultimately, if the relationship goes
wrong, you need to know who you are
going to pursue for payment or take legal
action against.
If your business customer is a sole trader,
your contract will be with the individual
who runs that business. You should accept
orders only from that individual and it’s
their reliability and credit worthiness that
you need to be concerned with.
The same goes for a traditional partnership.
You will want to make sure that any orders
you received are authorized by one of the
partners and that the partners have the
means to pay your invoice. Companies
and limited liability partnerships (or
LLPs) are a little different. They are legal
entities separate from the people who
own and run them. When you supply
goods or services to companies or LLP’s
the company or LLP is your customer.
Generally
speaking
the
directors,
shareholders or members will not be
personally responsible, unless they give
you a personal guarantee that your bills