You can get an awful lot of encouraging information about a prospective new customer from other people in the trade, a formal credit circle, a credit reference agency, or all three sources, and still feel nervous about supplying on credit - and you should.
The fact is that some customers will pay X number of their creditors absolutely to terms, but still cause endless problems for one single supplier - and that fact becomes particularly noticeable if you sit (as I do) in Credit Circles, and listen to the information that comes back from members sitting around a table.
Seven or eight members of a Credit Circle can report a single customer as being an 'OK account'; a 'good account'; or a 'clean account', but one or two other members (usually the ones who have put the customer on the Agenda in the first place, of course!) will report that same customer as being 'slow", 'needing chasing', or just as being 'a nightmare', and talk about unanswered letters, unproductive telephone calls, and invoices that are 90 or even 120 days overdue.
Noticeably, it's small suppliers that tend to talk about 'nightmares', slow payers, and customers who need to be chased hard for payment - and it's noticeable, too, that the 'nightmares', the slow payers, and the customers who need to be chased hard for payment are frequently new accounts that begin to go pear-shaped immediately following the first delivery.
Uusually, small supplier victims have done their homework. They've obtained a satisfactory new account opening form; made all the relevant enquiries; received satisfactory answers, and set credit limits based on those facts. Unfortunaely, that doesn't mean that they're going to get paid on time - or even at all - despite the fact that their delinquent 'nightmare' customer is behaving very well indeed so far as other suppliers are concerned and has a clean bill of health from a credit reference agency.
The answer to avoiding potentially predatory new customers - and any new customer has the potential to be a predator however solid it appears to be from information supplied - can be to use a 'halfway house' technique.
Halfway Houses in England used to be public houses cum hostelries situated halfway between one recognised stopover place and the next when the distance between those two recognised points was inconveniently lengthy, but the present purpose of 'halfway houses' is to act as bridges to normal commercial living, and to provide monitoring and support for people whilst they begin to integrate (or re-integrate) with commercial society.
If you supply goods against the security of post-dated cheques, you can act as a 'halfway house' - offer support to your customer, monitor its behaviour, integrate your customer into your own commercial society, and safeguard yourself and everyone else that is part of that society as far as you possibly can.
Post-dated cheques are a 'bridge' to normal commercial living. They allow you to offer credit and trust in a limited, relatively secure, and comparatively safe way. They also, of course, allow you to offer a form of credit when you think it would be commercially inappropriate or inadvisable to demand cash with order.
An honest and financially stable customer who wants or needs what you have to offer and is looking to trade long-term will never be offended by a request for post-dated cheques as security for a first - or even a series - of preliminary orders. They're probably going down the 'halfway house' route themselves.
And yes - I do realise that I have said 'comparatively safe' and 'relatively secure'. Dishonoured cheques are not always indefensible - but that's another story...
Copyright Geoffrey Metliss 2010
THE RATS TALES: Credit Management news, views and opinions - some of them unpopular...
