- Get a signed fully completed application form which clearly specifies the terms being agreed to - you may need this should you, at some stage, have to take legal action. If possible get the principals (directors, partners, interest holders or sole proprietors) to sign personal guarantees in respect of the account.
- Check more than the references given. Businesses applying for credit will give details of the accounts that they pay regularly and on time. Make enquiries with other businesses that the business may be dealing with.
- See that the business actually exists. Several major frauds have been perpetrated by ‘businesses’ that have been set up by people who buy as much as possible in a short time and then disappear having had truckloads of goods delivered. Find out whether the likely customers of the business have heard of it.
- If possible get the financial statements of the business. Remember that the more important information is often not contained in the financial statements
- Involve and make the sales people responsible for the credit being extended. If they are in the field they should be on the lookout for any adverse information regarding the business applying for credit. This will also prevent sales people from attempting to sell to anything that moves and from trying to rush through credit applications which they often regard as red tape rather than being necessary for avoiding bad debts. In this regard apply the adage ‘a sale is not a sale until the money is in the bank’ when it comes to paying commission to sales people - in fact, deduct bad debts from commission.