It would seem pretty simple that we should know who is buying
or selling our product or service. But, many would be surprised
at how often credit managers overlook this first detail on doing
business.
Credit Applications should always be signed by an authorized
officer of the company that you are extending credit. Accounts
payable managers, buyers and salesmen and women are most
likely not officers of the company.
It's happened many times that invoices become past due and
calls are made to the company seeking payment, only to be told
that the person who's signature on the credit application had no
authority to enter into a contract on behalf of the company.
Yes, you may have a case against them, but it is much easier to
simply check and verify the exact title on the application when it
is originally submitted.
Be very careful of HOW people sign their names to contracts.
If the signature on the credit application reads, John Smith, Jr.,
be certain that all subsequent documents also indicate the
suffix "Jr." at the end.
Believe it of not, if you must go to court, one of the arguments
that a debtors attorney may raise is that there is a distinct
difference between John Smith and John Smith, Jr. .
While it may seem to be like an inconvenience, you may also
wish to get the social security number of the person that is
signing the application (and other legal documents) so that
there can be no disagreement in a court of law later. Again,
this may seem like asking too much, but it's far better to be
prepared for problems, than having to pay thousands more in
legal fees when your debtor's attorney's defense is that you
never knew who you were giving credit to in the first place.
It's often been said that extending credit is a matter of "man's
confidence in man". But, as credit professionals often joke,
"Oh yeah. The old confidence scheme".
Just because you know the customer and have had a good
working relationship for many years, you should still ask for a
fully completed credit application with ink signatures by an
officer of the company.
When a business fails, they often must seek the advice of an
attorney. And, the attorney they hire will generally only know
one way of doing things - their way. Your long time business
friend, whom you had given a generous line of credit, is no
longer in the driver's seat. In fact, in bankruptcy proceedings,
it's against the law for creditors to have contact directly with the
debtor; all matters must be settled through the attorneys and
the courts.
Sometimes good businesses are driven into bankruptcy for no
good reason. They may become victims of expensive lawsuits
themselves. When that happens, they would want you to be a
secured lender and get paid first.
And let's not forget. For the small business owner, the failure
of a single large customer could mean a severe strain on cash
flow. You may be proud of your own payment record with your
suppliers, but if a major customer is suddenly unable to pay
you, you may find yourself in a proverbial cash pinch. Do you
really want to do that to your suppliers? Have to tell them that
you can't pay them on time?
We need only look as far as this internet to see how other
large companies, that should have known better, had allowed
billions of dollars of capital to be lost. In the late 1990s, many
hardware suppliers to dot.com businesses were extending
credit to accounts without getting the much needed corporate
guarantees. Business was booming!
When the bust finally came, many traditional brick and mortar
companies also had to show significant losses because they
were unable to collect on their unsecured accounts
receivables. The result? Lost revenue, massive layoffs, and
in some cases, bankruptcy.
Know who you are selling to. Get the correct signatures, in ink,
in full, on the correct documents that are legible. If possible,
get as much security as your customer is willing to give. It's
much easier and far cheaper to get things done the right way
the first time.
Simple solutions? You bet! But if you look at the most
successful business people in our society, they are generally
average people that understand that simple solutions work the
best.
