With the ever growing influence of technology our world is becoming more and more networked. This has understandably led governments to introducing stringent privacy legislation to ensure our private lives are secure.
This same privacy legislation has made life harder for credit managers and businesses looking to protect themselves from clients with a poor credit history. While the situation may be difficult, businesses can still protect themselves from less than ideal clients. All it takes is the proper preparation and planning, keen observation skills and a little good old fashioned common sense. With that businesses can prevent their receivables from becoming out of control.
One of the cornerstones of a protecting yourself is having a well written credit application. A business is still allowed to request information about an individual’s credit history; they just have to have the individual’s permission. A proper credit application will obtain permission to pull the client’s credit history, information about the client’s financial situation, and credit references for the client. This sounds like common sense, but it is surprising how few businesses that offer credit go through this process. If a client refuses to provide the necessary information, and/or give permission for you to check their credit history, then they are not worth the risk. And of course if you get the information, follow up! Pull their credit history, and check the references. Don’t assume that just because they provided the information means they are a good credit risk.
Be well aware of the overall economic climate of your businesses area of operation. If you find more and more clients asking for credit, and you know the economy is on a downturn, be careful. Also be observant of client’s lifestyle. Sometimes a little bit of charm and some conversation will be enough to get someone talking and give you insight into their character. This can tell you as much about their risk factor as any credit history. You’ll be looking for hints about their personality, disposition, and temperament - all clues into how they’ll act as a credit client.
Managing your receivables also means keeping an eye on your existing clients and their debt loads. They may have been a good risk originally, but situations can change and it is better to catch potential problems early. Changes in paying habits, circumstances, and buying habits can all be early signs that a client is starting to have trouble meeting their obligations. When dealing with business clients, look for changes in key personnel, management, and ownership. This can be an indicator that there may be a change in their ability to pay you.
Knowing how to assess clients and determine their worth as a credit risk can be a daunting task. Yet choosing the proper credit clients can make or break the future of your business. Having difficulty deciding who deserves your credit? That’s where DMG Commercial Credit Consulting comes in. With over 30 years experience in the industry, DMG helps small to medium sized businesses minimize their risk, time, and expense by offering full credit management services. DMG will walk through your entire credit process and do everything from writing proper credit policies, running credit history checks, receivables management and collections. Let DMG take the worry out of credit.