When you offer credit, you are making four basic assumptions:
1. You assume that your customer has every intention of paying.
2. You assume that your customer is able to pay.
3. You assume that nothing will happen to prevent payment.
4. You assume that your judgment about the character and integrity of your customer is accurate.
As a business owner, you are used to dealing with facts and figures. Notice that in making the four assumptions noted here, there is no particularly scientific method to help you
Credit data and a past history will give you a good initial indication of your customer's intention and ability to pay for the purchase. Past payment history nationwide will help you with the third assumption. The fourth assumption can only be dealt with by calling on your own years in business, what you know about your customers, and your gut feelings.
Verifying credit is fairly easy. On your credit application form, request three trade references and the name and branch of the applicant's bank. Call the bank, give your name and company name, and ask for a credit rating on your customer. Ask how long the account has been open, the average balance, and whether the bank has credit experience with this account.
Contact each of the trade references and tell whoever answers that you would like a credit rating on one of their customers. Ask how long the account has been open, what the highest credit granted is, and how the customer pays. Once you have reached the bookkeeper, you usually don't even have to ask these questions; the needed information will be volunteered. You might also obtain membership in your local credit bureau and draw reports on each account or utilize one of the financial rating services for businesses such as Dun & Bradstreet (D&B). This way, if the customer has any judgments against him or a record of slow payments with anyone, you will know.