How to check a customer credit once they fill out a credit application is a top concern for business owners. If they have taken the first step to have new customers fill out a credit application they are on the right track but how do they turn that application into a useful tool to help them limit their credit risk?
Some business owners are members of one or all of the three credit bureaus and will pull a credit report in order to check the creditworthiness of the customer. Other business owners who are not members of a credit bureau can do this manually and for no cost except for a little time.
If you have a signed credit application in your hand, you will have the following information and permission to check this information, credit references, personal and/or business, bank references, employment information and financial information.
It will only help your bottom line if you take the time to check those references, make sure your customer is credit worthy and for how much so you can set a credit limit.
People ask me all the time, what do I ask when I call a reference that someone listed on the credit application? Here is a list of some questions to ask when you are checking a consumers credit:
Is there a pattern of paying some suppliers on time and some late? Why is this? Is it seasonal?
Is there chronic delinquency or is it sporatic, are there any patterns?
Is there a seasonal pattern? (this can be worked around)
Is a poor payment history due to employment issues, a one-time event, a change in marital status?
What are the customers’ anticipated monthly purchases or what has the history been with the company you are calling for a reference (this can help you set a realistic credit limit)
Is cash or COD acceptable with the customer until or if credit is approved?
If your credit applicant is from a business, you might ask all of the above questions and also ask these questions:
Where is the business going and how long has it been in business?
Who are their customers?
What does the competition look like?
Do they have any suits, liens, bankruptcies, U.C.C. filings or judgments against them?
Have they had any bad checks?
Do they order and/or pay consistently?
Once you receive a credit application back from a customer, consumer or a business account, check all of their references, and get existing customers to fill out credit applications every 6 months to a year for updated information. If you ever have any doubts about extending credit to anyone, there are things you can do to limit your risk while still extending credit. Some of those things you can do to limit your credit risk are:
Get a personal guarantee
Offer month to month credit
Offer ship to ship credit
Ask for a security deposit
Get a 50% deposit on every order, with the balance due upon completion or shipment
It is up to you to tell your customers, how you want to be paid, when you want to be paid and what will happen if they don’t pay you or pay you late. If you don’t do this, you are not protecting your business, your cash flow or your bottom line.
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