There are various "self help" measures you can take to evaluate the risk you are taking in supplying goods or services on credit.
Amongst these are some practical measures which, if taken, should go some way to ensure you receive payment once credit has been extended. The following list, although not exhaustive, should assist:-
- Ensure your customer completes a credit account application. [Click here to view sample credit account application]
- Set your credit terms once you have received the report and credit application form back.
- Send a letter to your customer once the new account has been opened. [Click here to view sample letter]
- Consider joining credit circles and other industry groups. Credit circles basically are closed industry groups, open to invitees of similar industries or businesses, passing confidential information amongst themselves concerning prospective customers. The Credit interchange offers this facility over the internet and its services are entirely free www.creditinterchange.com
- Once a credit risk has been established there should be some objective criteria within your organisation to allocate a risk category to each customer. Such risk categories can be categorised as follows:-
- No risk - this could apply to Government departments and blue chip companies.
- Standard trade risk - this will include all those not included in categories 1 and 3. Limited companies, partnerships and sole traders having a sound financial backing will form part of this category.
- This will be high risk customers and could apply to, for example, customers who are always late in paying their accounts or those who have judgments registered against them.