1: Know your customer
Don’t be afraid to ask for all the information you need – because if you can’t get it at the beginning of the relationship, what are your chances of getting it when things turn belly up?!
Do you really know exactly who you’re trading with: If you don’t know the legal name of the entity that you are trading with how can you possibly check their credit history. Furthermore, you won’t be able to invoice them correctly, and it won’t be easy to start legal action if you need to.
Try this: Pick an existing customer and ask yourself “Do I know the legal name and structure of this business”, (is it a limited liability company, a partnership, sole trader)?
Lesson: The entity or person/s that own a business, and therefore liable for any debts, may not be the same as the name under which your customer trades.
For an example: A member pointed out to us (Shark Patrol) that a particular company wasn’t listed on our database, or the Companies Office web site for that matter. It was fairly obvious to us that the ‘Company’ referred to was actually the franchise name. Our member had always known them as xyz K Road (names changed for legal reasons).
The family that owned this franchise had a number of business interests, all with different but very similar Company names. Our member then proceed to check the company structure of all his clients – they were surprised to find out how little they really knew. Although to be fair, they inherited this customer base when they purchased the business!
Check their company structure: Use our free search option at the top of each page on insolvencywatch.co.nz to Check the exact name and legal status of each of your business customers (you will need this if you ever have to take legal action to recover a debt).
Another question: For each and every customer that is not a limited liability company do you know the name/s and personal details (address, phone etc) of the owner or partner/s?
Or put another way: if the customer closed doors and walked away tomorrow, would you know where to start your search for them?
Customer provided references: Ask for references and use them, ask questions like: would they trade again, do they consistantly pay on time.
Tip 2: Agree payment terms before you supply
First rule in business ‘Never Assume’.
- Purpose written Terms of Trade: A purpose written Terms of Trade should protect your rights, limit your liabilities and provide security in the transaction. Include the Legal name and any trading name/s in your contract/s and / or Terms of Trade.
- Do not assume that you will be paid on 30 days or end of month following: Make sure that your customer’s order does not suggest different payment terms.
- late payment charges and interest: Set out penalties if payment is late – you do not have to invoke them, but the right to do so is useful.
Tip 3: Invoice accurately, clearly and promptly
An invoice cannot be paid until it has been received.
An invoice will not be paid if the goods or services are not clearly specified.
An invoice will not be paid if the customer’s order number has not been quoted.
An invoice will not be paid if it has been sent to the wrong address or has the wrong company name on it.
A disputed invoice will not be paid.
Tip 4: Do not be afraid to ask for payment
The only good customer is a paying customer, and if you don’t ask, you might not get.
For large or important amounts, telephone before the due date to make sure everything is OK.
Make immediate contact with the customer when payment has not arrived.
Be assertive about what you expect and when you expect it.
Make the consequences of non-payment clear.
Follow up promises to make sure they are met.
Do what you say you are going to do, and do it when you said you would.