...Can anyone provide any advice with regards to selling on credit?
Thank you in advance
One of the most important principles in effective credit management is '
Know your customer'. This means:
i).
Establishing their identity - make sure you know who you are dealing with; what is the exact legal status of your client? i.e. sole trader, partnership, limited company etc. I have witnessed many unwise credit decisions due to simply not knowing the client well enough.
ii)
Identifying the directors if a limited company - what are their names, contact numbers and where do they live; check the appointments report in Companies House against what you have been told - it only costs a £1.
iii) Having at least a couple of
good trade references - this will help you determine what other suppliers/ creditors of your client think of them.
Then you need to
run your checks:
i) Credit Report based on the info you've been told - have an online service to make this quick; look carefully at the results for any worsening trends and know the language of the credit reference agency so you can interpret their credit reports accurately. If you can afford it ask for the 'live' credit report facility so you can be sent automatic credit updates on your trade client and so build a more accurate picture over time. The main criticism of credit reports are that they are can only offer a retrospective view and not even a current view. So you'll need other information to make a credit decision and other tools to protect your business when supplying goods or services on credit.
ii) Trade References - Run these as backup to the Credit Reference Agency report, a quick call should suffice or have a standard letter drafted.
iii) Check any company clients on Companies House - You can tell an awful lot for free e.g. how long have they been trading, are they still active, do they have up-to-date financial accounts and annual returns.
Decision -time. You should have enough information now to make a reasonable decision on how much credit you will offer your client and for how long. Often, a good credit report will suggest a maximum limit although remember their limitations as already described.
Your checks may have indicate a new company is seeking credit who have no track record and therefore a low credit rating. You may also know that the directors of the company have personal assets. So, here, if you are keen enough for the business, you may want to suggest to the directors that whilst you can't offer the company any credit, you could be more flexible if the directors signed a personal guarantee to support their new, relatively unknown company. And if they refuse to do this then why should you support their company.
Even having made a decision to offer trade credit with a client,
your business will still need protection should anything go wrong during the course of business. A good set of terms will work by:
1. Protect your business against the loss of profit
2. Provide reservation of title until goods are paid for
3. Provide indemnity from potential liabilities
4. Enable charges to be imposed for late payment
5. Help resolve disputes and unpaid accounts much faster
The best means to do this is through bespoke
business terms and conditions linked to clear client documentation such as Quotations, Request to Supply, Job Completion forms and the like.
The
tools you'll need are:
a) a Credit Account Application form linked to your business terms and conditions
b) access to Credit Reports - usually via an account with a credit reference agency
b) Clear, succinct Terms and Conditions created specifically for your business
c) Effective client documentation that can make your terms legally-binding and more easily enforceable
Best Regards
