We handle a fair number of commercial collection cases for our business clients, and for many of them we offer suggestions to minimize the risk of nonpayment for goods and services. Some of these suggestions include:
- requiring personal guarantees from the principals of the business;
- obtaining security in the form of a letter of credit, a mortgage on real estate, or a UCC lien on goods and inventory; and
- close monitoring of the customer’s account activity and payment patterns.
Perhaps the best advice we can give is to try to get to know your customers better. A thorough credit review includes looking at the owners of a business and their credit history and personal affairs. If you knew the owner of a business was being sued for gambling debts it would certainly merit close scrutiny. A pending mortgage foreclosure is never a good sign. Federal tax liens or unpaid property taxes are major red flags. Simply obtaining a credit report is not enough – a broader background check can reveal telltale issues which should be considered before extending credit.
The more you know about your customer in advance, the less you will find out the hard way.
— Kevin Palmer