If your business involves the sale of goods or services on open account (i.e., where you invoice your customer after the goods or services are provided) there may come a time when you have to resort to the court system to collect what is due. In our current economy an increasing number of small businesses are literally closing up shop, leaving creditors holding the proverbial bag.
Since part of our practice involves helping our clients collect what is due them we are seeing an increase in such cases. We are also surprised to see how little background information some of our clients obtain from their customers before extending trade credit. This can make it difficult to collect when the customer literally skips town.
For businesses that extend credit here is a suggested checklist of information to obtain from potential customers, to be kept on file in case it is needed in the future:
- type of business entity (corporation, partnership, sole proprietor, limited liability company, etc.)
- precise name of business verified by a copy of the articles of incorporation, limited liability company or partnership agreement, or fictitious name registration form
- precise business address (not just billing address)
- names and home addresses of all officers (President/Vice President/Secretary/Treasurer of the business
- names and home addresses of all owners of the business (shareholders, partners, members, etc.)
- name and address of customer’s bank branch
- name and address of customer’s accountant
- financial statements/tax returns
- personal and trade references, which should be checked.
We recommend that you get as much information as possible about your customer before they become your customer. This allows you to perform a proper credit analysis and will make it less likely that your customer can walk away from its obligation to you in the future. If a potential customer hesitates to provide the requested information it should tell you something about the future of your relationship.
Finally, we strongly recommend that you seek personal guarantees extending credit to a business entity.
— Kevin Palmer