will be paid. Dealing with companies and
LLP’s is a bit trickier because you need
to make sure that whoever you deal with
within that organization has the authority
to place orders with you.
If you are dealing with a director or senior
employee, chances are you will be entitled
to assume that they have the business’s
authority. If you are in doubt, get one of
the directors of the company or members
of the LLP to confirm that you are
entitled to take orders from your contact
within the business.
Credit Checking
You are always going to require payment
up front, running credit checks on your
customer will help you to decide whether
you are going to give credit and, if so, how
much. There are numerous businesses
that will carry out credit checks for you
as well as online providers that allow you
to access databases of information and
generate your own credit reports.
Credit reports can provide you with a
range of information including: credit
scores that help you to assess in an instant
how credit worthy your customer is;
information on whether your customer
has been subjected to an insolvency
event such as a bankruptcy or winding
up petition; details of whether there have
been any court judgments against your
customer; key financial information in
relation to companies, including extracts
from the accounts they have filed at
Companies House; and information
on who the directors of a company
or members of an LLP are so that, if
necessary, you can carry out credit checks
on those individuals as well.
This information will help you to assess
who your customer is and what their
financial standing is like. In addition to
formal credit checks, you might also want
to think about trade references to tell
you how reliable the customer has been
in the past at paying their bills. This will
be particularly important if a customer is
new to you.
If you receive a reference from your
customer, make sure you ask for contact
details for whoever supplied it so that
you can make sure that the reference is
genuine. References won’t be a conclusive
indication that your customer is a safe
bet but the more information you can
compile the better.
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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.
Risk Assessment
Once you have carried out a credit check
or other investigations in relation to your
customer, you can decide how much of a
risk they pose to your business and what
measures you need to put in place to
protect yourself.
When you have been through this thought
process you will be able to decide: whether
you want to deal with this customer at all;
whether you will offer the customer credit
or require payment up front; what level
of credit you will give the customer; and
whether you are going to require personal
guarantees from the owners or directors
of the business, or something like a
performance bond.
addresses for those individuals. If you are
dealing with a limited company or an LLP,
you can find information via government
website or at Registrar General, what is
commonly known as CR 12.
Ask questions: Don’t be afraid to push
your customer for all the information you
need and to ask all of your questions at the
earliest opportunity.
Beware of “friendly” references: These
might not give you the full picture.
Referees that you choose are likely to be
more reliable.
Obtain credit information: Investing in
credit information will help you to flag up
problem customers and avoid bad debts.
In particular, setting credit levels should
never be a one-size-fits-all exercise. You
need to make sure that the credit you
offer reflects the credit worthiness of the
business. When you offer credit, you are
in essence allowing your customers to
borrow from you. Think for example of
how much scrutiny a bank wants to do
before lending; there is no reason why
you should expose yourself to a similar
risk without taking some simple steps to
protect your interests. Set rules and stick to them: Make sure
that you and your employees always follow
a set procedure in relation to the checks
you do, the terms you trade on and the
credit limits you set. Stick to these rules
even if you are under pressure to supply
urgently and tempted to skip some of the
above steps.
Once you have got to know your customer
and decided 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
carefully 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 continually monitor your risk levels. Before you agree to do business with your
customer, make sure you can answer “yes”
to all of the following questions:
Top Tips
Do your research: Uncover the exact name
and legal status of the business. If you are
dealing with a sole trader or partnership,
make sure you have the full names and
Know Your Customer:
Checklist
• Do you know whether you are dealing
with a sole trader, a partnership, a limited
company or a limited liability partnership
(LLP)?
• Do you know what the exact name of
the business is? In the case of companies
or LLPs you need to know the official
registered name, which might not be the
same as the trading name the business
uses.
• Do you know who owns the business?
Remember that the trading name of the