How well do you know your customers?

I am sure we all believe we know our customer well, both old and new and that is likely very true in the majority of cases, but it is apparent sometimes however that insufficient or any initial due diligence has been undertaken and this is not noticed until we are instructed to assist with debt recovery. In some instances, debts we are asked to collect can’t be recovered without initial additional remedial work and/or can’t be recovered at all.

There are occasions where some debts are therefore unrecoverable for a number of reasons including but not limited to contractual documents incorrectly addressed, entities not existing or where a customer is no longer trading, or the identity of the customer has changed.

Below are some potentially helpful hints to assist in the prevention of such circumstances and particularly if you are extending lines of credit: -

1. Check the identity of your customer; is it a sole trader, a partnership or a limited company? 
2. Ensure you correctly record the customer details to avoid issues later when invoicing
3. Undertake credit checks and continue to do so on a regular basis; some agencies offer “Alerts” in this respect so that you will know immediately when financial circumstances change.
4. Request references from other suppliers the proposed customer already contracts with.
5. Obtain and record name, address and contact details for all parties i.e partners and directors together with certified ID for each.
6. Check Company House details for persons with significant control – if that is another company then carry out similar due diligence on that entity.
7. Obtain a copy of the most recent accounts (not from Companies House) you should obtain the full accounts not the abbreviated set, alternatively request the last 3-6 months management accounts.
8. Obtain copies of the 3-6 months bank statements for company or business.
9. Written contracts are better than verbal, albeit both are usually enforceable.  
10. Include personal guarantee clauses within your contracts.
11. Include, where appropriate a retention of title to goods clause and ensure it is enforceable.
12. Include a clause to the effect that if the contract is not signed, then continuing business with you will amount to acceptance of your terms.
13. Ensure your terms of trading include payment terms – Many business are now looking at “pro-forma”/“on account” payments or terms between  “On Demand” and 30 days.  What you choose is of course entirely up to you to fit in with your cash flow and accounting requirements.
14. If an invoice is not paid when it is due place the customer on “STOP”.  Contact the customer to ascertain what the problem is with a view to quickly resolving any issues.  If you don’t take action on the very first occasion then you will be demonstrating to the customer that you are not serious about enforcing your contract terms.
15. If the customer can’t pay in full in one tranche you may wish to agree alternative interim payment terms but potentially keeping the customer on “STOP” until full settlement is achieved and/or amending your terms so that payment is made pro-forma prior to continuing supplies.

If you need help with resolving a dispute over money owed to your business, our specialist Dispute Resolution Team are here to help. Just call 01926 491181 or email: SiobanC@moore-tibbits.co.uk. Our Dispute Resolution Team, work closely alongside our Business Law Team who can help to ensure that your business contracts and procedures are all in place to minimise the risk of disputes arriving further down the line.