Lawyers are often instructed to recover debts on behalf of business clients.

Often those clients have offered credit terms to their customers who have then not paid in accordance with those terms.

Whilst in business generally, and particularly in the present economic climate, companies rely on credit being available, there are some prudent steps which should be taken before offering credit to new customers or extending a credit line to existing customers.

In no particular order these are as follows:

1. If the customer is a company, ask them for their latest accounts.  These may be available through Companies House, but this is not always the case, and you may need to ask for the accounts from the customer directly together with copies of their recent bank statements.
2. If possible, obtain references from other organisations who are already dealing with that potential customer.
3. If your business is registered with a credit agency, for example Experian, check with them whether the potential customer has any Judgments registered against them.
4. Ask for a guarantee from a company director – this is particularly important where you are dealing with a new company that has perhaps only been trading within the last year or so.
5. If your customer is an individual carry out a search against that individual’s property to find out whether it is owned by them either in their own name or with a partner who may not be involved in the business.
6. Also, if dealing with a company still ask for a director’s home address and again find out whether it is owned by them.

Your willingness to offer credit and the repayment terms will depend on the outcome of those enquiries.

Obviously the more “red flags” for example a County Court Judgment, an individual not owning property or a director not willing to provide a personal guarantee, the less likely it is that you should offer credit and/or the more restrictive your credit terms should be.

Remember that every time you sell goods or provide a service that has not been paid for, you are effectively offering interest free credit.

By not offering credit terms, your organisation may lose business, but ultimately if a customer does not pay then you have worked for nothing and your only option to try to recover the monies which are owed may be court proceedings which can be lengthy, time consuming and expensive.

For pragmatic cost-effective advice on credit control tailored to your specific business needs, please contact Ridley & Hall’s expert litigation solicitor David Wilson on 0800 860 62 65.

David Wilson – Solicitor