We can’t always anticipate a bad debt, but there is a solution…. prevention:
For businesses who provide credit here are some handy tips you could put into practice immediately.
1. Obtain the full legal entity of the name of the business and/or company.
You will firstly need to establish the full legal entity. To do this, ask your customers to provide you with a copy of their business or company registration forms. This could be introduced in the first instance of opening an account.By obtaining this information, you will instantly identify and understand who you are dealing with.
Depending on the amount of credit being provided it would hurt to conduct a Business or Company search. This information will give you clarification of your customer’s entity and can be kept on file with your customer’s dossier.
2. If you’re dealing with a proprietary limited company, you may also want to ask for a director’s guarantee.
A director’s guarantee is an undertaking that the directors will be personally responsible for paying the account in case the company ceases to trade. Therefore, if the company goes into liquidation and you have a director’s guarantee, you have a second chance of collecting the debt. If you didn’t secure a director’s guarantee you will probably lose your money.
3. What happens when you’re dealing with a business that is owned by an individual?
It is crucial to ask for the business owner’s full name and residential address. Most of the time, the registration of a business name document will provide this information, if it doesn’t, ask for it. If the business ceases to exist the individual(s) are still liable to pay for the debt.
In having obtained the residential address and owner’s personal details you can immediately proceed in collecting the account until the account is paid. When collecting accounts through a collection agency they will need to identify who is responsible for paying the debt. Any supporting documents the client might have, including a written agreement or signed delivery docket are a bonus.
4. Generally speaking, clients like to obtain three trade references from their potential customers.
Assuming your customers will give you their very best trade references, there is no need to request this information. It would be more useful to eliminate the trade references and use the above suggestions instead.
Collection agencies are used to assist businesses in collecting accounts for either slow or bad debtors. It gives clients piece of mind knowing the collection agency will take care of things from start to finish.
Key factors in collecting accounts
- Establish full legal entity on the business before supply of credit.
- The older the account the more difficult and the more expensive it becomes to collect.
- Bankruptcies are on the increase.
- You legally have six years to collect your accounts.
- Conduct a business or company search as a prerequisite.
- Have written agreements in place.
- Ask for Director’s Guarantee.
- Prevention is better than cure.
To save yourself a headache, process as much information on your customers as this will be an advantage to you. This will assist you both now and in the future in collecting your accounts right through to litigation stage. In addition, remember that you only have six years to legally collect your accounts.
Now you know what you need to do, so make sure you do it.