Don’t extend credit to your customers until you have done a background check – follow these steps and watch your cashflow improve, whilst spending less time chasing customers for payment.
1. Type up a Credit Application template for customers to complete & return.
Include spaces for:
- Customer Business Name
- ABN / ACN
- Directors/Owners Names
- How long trading?
- Preferred invoice & statement method: Email / Fax / Post.
- Preferred contact name & email address for invoices & statements.
- 3 x Trade References – Business name, email, phone number.
You may wish to include:
“By submitting this application, you authorise (insert your business name) to make inquiries into the business/trade references that you have supplied.”
Lastly, a place for their name, signature, position and date.
2. Once Credit Application completed and returned, contact all referees and ask:
- How long have they been trading with you?
- Do they pay you on time?
- What are your payment terms?
- What is their monthly spend?
3. If you are comfortable with the response from all 3 referees, go ahead and extend credit to your customer. If the customer has not been in business long consider cash on delivery terms, a low credit limit or 7 days terms until a solid relationship has been established.
4. Inform your customer in writing whether their Credit Application has been accepted, clearly outlining your payment terms.
5. Update your accounting records and file Credit Application away.
If you would like to read further tips on dealing with slow paying customers, refer to my previous post Keeping on top of customer payments. For other tips on improving cashflow, click on the link to 14 Cashflow Tips for Small Business.
Do you do use Credit Applications in your business or workplace? Is it something you can see yourself incorporating into your business procedures?