Every customer requesting credit should complete a credit
application. From a marketing perspective, you may decide to call
this document a "customer profile" or "client data
sheet," but what's important is that you get the
information you need to make a sound credit decision. Along with
the application form, you may also ask for financial statements,
annual reports, and other background information on the
customer.
Don't just accept the credit application at face value; do
some independent research to verify the information. Just as you
may have different credit requirements based on the amount of
credit requested, you may also vary the extent to which you check
out each account based on the specific circumstances. Most
importantly, exercise consistency and thoroughness. A good place to
start is with an independent credit reporting agency, such as Dun
& Bradstreet or TRW. Some experts recommend checking with at
least two sources, since their files will rarely be identical.
Check your telephone directory under "credit" for
agencies and brokers serving your area.
If possible, visit the customer's facility. Does it project
a well-maintained, stable and prosperous image, or is there a sense
of shabbiness or decay? You might also call the local Better
Business Bureau; though they won't give you a credit rating,
they can tell you if there's a record of complaints against the
company. One or two disputes against a sizable organization
probably isn't significant, but a long list of complaints
should make you cautious.
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Take the time to check the credit references your customer
supplied. Find out how long these references have been doing
business with your customer. Your customer may pay them on time,
but if all the credit references have had relationships of two
years or less and your customer has been in business for twenty
years, you should find out who they bought from before. Also, find
out what credit lines other vendors have extended and factor that
into your considerations.
A potentially sensitive situation may arise when a customer is
also a friend. You might be more comfortable attributing your
requirements for credit information to a third party. You can say
something like, "I'm sure you're good for the money,
Joe, but my CPA says we have to have this information on file for
every customer." And friend or not, if a customer balks at
giving you adequate credit information, you need to seriously
consider the level of risk you are taking.
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