When providing credit to a customer you must always be alert to try and avoid problems later on. It is imperative that you seek out as much detail as you can to make an informed decision about whether to issue credit. For small businesses in particular, even just one customer not paying can cause significant cash flow problems.
Getting all your customers to complete credit application forms is a good start but without verifying the information contained on the forms you may still end up with a customer who doesn’t pay and doesn’t have any assets from which you can seek payment from.
Most credit application forms contain a personal guarantee for the director to sign. It is extremely important that the personal guarantee is completed and signed correctly. Some of the common mistakes include:
- company name being left out;
- signature missing;
- signed by an incorrect party who is neither a director or shareholder of the company; and
- no date of signing included.
If the personal guarantee is not completed correctly it may make it ineffective.
For a personal guarantee to be worthwhile the director must have assets in his/her own name – if not then the personal guarantee is worthless. However, it is estimated that 1 in 4 people lie about owning their own home when filling out a credit application form.
Brodie Collection Services specialises in reviewing credit application forms and verifying the information contained in them so you can make an informed decision about the level of risk you may face if your customer defaults on a payment
So how can you catch a liar who says they own a home but don’t?
To start with, your credit application form should always have the following question:
“Do you own your own home with your spouse/partner or rent?”
If the answer is “yes I own my own home” how can you verify this?
You can find this information by visiting Landata at www.landata.vic.gov.au. If you have the correct home address you can find out who owns the home. Alternatively, Brodie Collection Services can provide this service for you for a low $66.00 and match the information against the credit application form details.
So it is relatively easy to catch a liar but what do you do once you find out that the home is not owned by the person stated in the credit application form. If the home is owned jointly then both parties should sign the personal guarantee if they are directors of the company. If one party signs the personal guarantee but the spouse owns the home, then the spouse should sign the guarantee if he/she is a director of the company.
If your customer refuses to complete the personal guarantee correctly then you must really question whether you should be extending credit to them.