Obtaining credit from a company is not a right of being in a trading relationship. However, many companies, especially small businesses, offer credit to support sales. Often, few or no checks are made to establish the customer's financial standing. The perceived cost of credit checks and the time taken requesting references, means that a lot of trading relationships are based on flimsy agreements. If the customer pays the first invoice then all is assumed to be in order for future sales.
The first indication of trouble is usually ignored, such as: payments being 2, 4, 6 weeks late, personal cheques paying corporate debts, cannot contact customer for a number of weeks etc. (however, payment is received eventually). Further deliveries/services are supplied. Then no payment is received for 40, 50, 60 days: you look to see what information you have on this customer: not surprisingly, you have very little or no information.
a) You only have a trading name
b) You do not have the proprietor's full name
c) You do not know if the company is limited or registered
d) You do not know if the company has a parent company
e) You do not know the registered address
f) You do not know the customers bank details
g) You do not know how long they have been trading
h) You do not know who the other suppliers of the customer are
Any potential customer that will not disclose all of the above information prior to a credit relationship should not be trusted. Some customers will say that is too many questions for the size of the credit facility. This may be so, however, you must be the judge of this, not your customer.
Look at it another way. If a new supplier of yours did not ask any questions about you and your ability to repay credit and then gave you a reasonable credit facility: would you trust/count on them to be a reliable supplier of that important piece of stock you need at a moments notice. I would not. I would not expect them to be around for long. It would not take long before unscrupulous customers started clamouring all over the supplier for credit.
Finally, you must make every effort to identify, and use, the applicants legal trading entity. The following is a guide to the entity you must use for the credit application form:
INCORRECT
'JJ’s Café'
CORRECT
Jane Smith and John Smith trading as 'JJ’s Café'
INCORRECT
JJS Machines
CORRECT
Jane and John Smith (Cafe) Machines Limited
INCORRECT
John Smith
CORRECT
Smith Partnership Partners: Jane Smith, John Smith
You must be sure who you are providing credit to. In a legal action, it is not sufficient to say that although the credit application form stated that the company name was J J S Machines (as above), and you invoiced J J S Machines, you considered the company to be John and John Smith (Cafe) Machines Limited.
If you are currently using an incorrect trading name: inform the customer in writing that you will only provide further credit to the correct legal entity. Ensure you do not create a problem whereby the customer refuses to pay for any outstanding credit when you notify them of the change of trading terms and conditions.
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