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Due Credit

Making the sale is great, but the transaction isn't complete until you've been paid. "Regardless of the size of your company, if you extend credit to anyone, you need to establish and enforce credit policies," says David R. Gamache, an attorney with the St. Louis law firm Newman, Goldfarb, Freyman & Klein P.C. When extending credit, Gamache suggests you:

*Use a standard credit application form, and complete it for every customer. The application should tell you the company's legal name and the name it operates under; the principals' names; complete contact information, including who has the authority to make purchases and who you should call about invoices; physical and mailing addresses; phone and fax numbers; and any special instructions required to process your invoices.

*Be clear about your terms. Specifically state (either on the application or on a separate form) what your credit terms are and the consequences for failing to meet them. Gamache says this section is where you indicate what late fees, if any, you'll charge; that the customer is responsible for legal fees should such action become necessary; and the venue where a lawsuit would be filed. Have the customer sign a document acknowledging and agreeing to your terms.

*Ask for and check credit references.

*Get a personal guarantee. This gives you recourse if the company fails to pay. Simply add a line to your credit forms stating that the business owner will be personally responsible if the business fails to pay.

One caveat on the personal guarantee: Consider the marital status of the customer and the property laws of your state. "In states where property between husband and wife is held by the entirety, the personal guarantee should include the spouse," Gamache says. "Otherwise, the guarantee won't mean much." Check with your attorney to be sure you're using the most effective language in all your credit documents.

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