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Who Is Your Customer?

bigstock_What_Is_The_Answer_1347947-e1319752352946-239x300This may sound like a strange question but a lot of people don’t actually know who their customer is.  The reason for this is – they don’t ask! Even if you’ve known your customer for 20 years you must know their legal entity. The reason for this – if you are owed money and have to take further action their legal entity is vital to start the ball rolling.  If you don’t know then you may leave yourself with a bad debt and unable to recover through the proper channels.

Here are the most common types of liabilities:-

Sole trader – Mr Smith t/a Smith Contracts

This is an individual (not a company) who is the business owner. In the

event of the failure of the business, the individual faces bankruptcy and

is personally liable to pay any losses to creditors.  A sole trader has no obligation to lodge annual accounts.  One way to check them out is to carry out a personal credit check on them.

Partnership – Smith & Jones Partnership

A partnership is to be treated the same as a sole trader.  In the event you are not paid from a partnership all partners are joint and severally liable to pay the outstanding debt.

Ltd company – Smith Ltd or Smith Ltd t/a Smith Contracts

A company is to be regarded as a “separate legal entity”.  This means it will have its own bank account and its own credit rating.  Always check out how long the ltd company have been trading, trade references and credit rating before giving out credit. If the company ceases to trade, is liquidated, or dissolved before you have been paid then you can be left with a bad debt. A director or shareholder of the company is not liable for any debts unless you made them sign a personal guarantee.

Public Ltd company (PLC) – Smith Contracts PLC or Smith PLC t/a Smith Contracts

A PLC is owned by shareholders.  These shares can be bought by the general public.  They are listed on the stock exchange.  As with an Ltd company – check out their credit rating etc. before giving out credit.  A PLC company usually has a lot of published information regarding them through financial press and a websites.

As mentioned at the start it is important you know who your customer is.  The best and most efficient way to do this starts with getting your customer to complete a credit application form at the beginning of your business relationship. It’s never too late even with existing customers.  We are happy to supply you with a draft credit application form that can be altered for your own particular needs. Just complete our Contact Form and we will email you a copy by return.

 

5 Simple Credit Control Rules to Follow

This is something I am always banging about in my line of work. Many of your customers will prefer to do business on credit and most will likely insist that you extend credit terms.  Under the best of circumstances, it’s unlikely that they’ll all pay on time.

By establishing and enforcing smart credit policies your business will run more smoothly and maintain a sufficient cash flow.

 

5-simple-credit-control-rules

Follow the 5 simple steps below and you will find life easier in the credit control department

Further explanations of the credit control rules:

Step 1 – Although no policy is foolproof, write a set of credit terms based on what works for your business. If you are diligent and thorough the policy should serve you well.

Step 2 – Your customer must make it clear what their legal entity is. There is a big difference to giving credit to a sole trader to an Ltd company.

Step 3 – don’t just read the trade references.  Always check the trade references are legit.  What is the point of asking for trade references if you don’t check them? Also beware of customers who won’t     complete a Credit Application Form. Are they hiding something?

Step 4 – by adding a Personal Guarantee you are giving your business additional protection should the customer’s business go under.

Step 5 – Has your customer got a good history of paying on time? You will soon know by checking their transactions in the last 6 months.

Always monitor your customers and credit terms on an ongoing basis.  Instinct is something I believe in.  If a customer is new and you have a bad feeling they might leave you with bad debt, only accept cash or Cash on Delivery. Never under estimate your gut feeling.  A customer is only a customer who pays. If they don’t pay you will be left with more than a headache