In a lot of industries, customers are provided with the leeway to pay the services or goods delivered to them. But to make sure that you get paid and your cash flow remains untouched, it is often best to ask to get paid in the short term. When choosing a client or customer to trust your offerings with, it is necessary to ensure they are creditworthy. You don’t want to risk your operations by delivering your products or services to customers who don’t pay or those who are simply negligent. Here are some tips that can help determine your customers’ creditworthiness:
Establish a Credit Policy
To mitigate the risk of not getting paid, create a formal credit policy which details specific and clear conditions under which provide your customers your payment terms. Your credit policy must include your criteria to evaluate a customers’ creditworthiness, the amount of credit you can grant, your payment terms and the penalties and interest late-paying customers have to pay.
Establish a Credit Application Process
The process must include basic information such as the name of the customer, their address, contact information, tax identification, references and other related information. Also, make sure you request information on the payment history of the customer. The point here is to know any credit arrangements that customer has.
Request for a Credit Report
An applying customer should provide you a copy of their credit report. This report should provide information on historical payment history, court judgments against your customer, liens, any lawsuits and bankruptcy records.
Request for a Financial Statement
Financial statements can disclose information the ability of a public company to pay you back. Check the ratio of the current assets and liabilities of the company.
Ask for Credit References
You don’t request for and look at the list. You need to contact the parties in the list and ask if the customer owes them money. Also, their references can provide you information in terms of whether or not the customer has been making timely payments to them.
Having credit-worthy clients can help you get your invoices factored by a factoring company. The company will buy your invoices and advance the working capital that your business needs against the unpaid accounts receivables. Because invoice factoring is not a loan, you don’t owe any money to the fund provider. It only lets you get cash for services or goods your business has delivered. Learn more about factoring companies on Factoring Company Guide.