Today millions are behind on their bills, credit cards and mortgages. Many businesses are no different, experiencing an unprecedented economic hardship. Everyday I counsel my clients to not repeat the same mistakes that got us here in the first place when the banks turned a blind eye to risky customers. By proceeding with caution with a potential customer at the beginning of your business relationship, you can minimize the risk of not being paid for the services or products you provide.
"It’s not enough anymore to trust in a “good feeling” or make a handshake agreement. Information is power…"
One of the best practices to employ is ask for a signed credit application up-front—before you provide your service or supply your product. Based upon the information in the application and credit report you’ll get an idea of exactly who you’ll be dealing with—and gain insight into the terms you should determine for your business agreement. A credit application should provide you with the person’s full contact, banking and employment information and if married, it will give you their spouse’s information as well.
With a signed credit application in hand, you’ll have the legal authority to run a credit check. Although there is a fee associated with pulling a report from the bureaus or a service, I suggest to my clients that they do so to understand a client’s full credit history. However, having a signed application form can be ammunition if a client falls behind in payment—sometimes simply sending them a copy of the signed application is enough to encourage them to pay.
Also important in thinking ahead: With a signed credit application it is much easier for you to collect interest and legal fees if that language is contained within it. Ultimately if you end up fighting in court, it is easier to get a judgment, to garnish wages, do a bank execution, and if the person owns real estate put a lien on their property.
It’s not enough anymore to trust in a “good feeling” or make a handshake agreement. Information is power, and I can’t stress enough the importance of knowing who you’re dealing with when you enter a business relationship. A credit check will help to determine your risk and ultimately minimize your financial losses. Visit our forms section for a credit application you can use, and if you need some advice on filling it out or running a credit check, you can contact me for a quick half- or one-hour consultation.