The last thing you want is to spend the new year trying to collect on orders you were excited to ship in November. Here are a few credit practices I'd encourage every supplier to follow, whether you're opening a new account or doing business with an existing one.
A completed credit application is where the process should begin. You shouldn't be chasing down information after you've already agreed to ship. A complete credit application should ask for detailed information about the business, its owners and principals, bank and trade references, and individuals authorized to place orders. It should also clearly outline your payment terms, shipping and return policies, and other conditions of doing business. Having this information upfront allows you to verify important details, check references, and establish clear expectations before extending credit.
Get Product-Specific References
If you're selling diamonds, ask for references from other diamond suppliers. If a customer wants $50,000 in merchandise, a reference for $5,000 in purchases isn't going to tell you much about their ability to handle a larger obligation.
Find out how long they've worked with the customer, what their payment experience has been, and how much business they're actually doing together. A list of references sitting in a file isn't due diligence. The verification is what makes those references useful.
Once you have the application and references, compare that information against a current JBT Credit
There are several things I would want to know before extending credit:
Don't focus exclusively on the pay score. Look at the entire report. You may find information that confirms what you've been told. You may also find something that deserves another conversation before you ship.
Payment terms, shipping arrangements, returns, and other conditions should be established before merchandise leaves your hands. Make sure your customer understands them, and address any questions before the order goes out.
I've seen how easily problems develop when two businesses believe they've agreed to the same thing but have very different understandings of what that agreement means. If a payment problem develops later, clear terms can make a meaningful difference.
Get the owner's or authorized representative's signature on your credit documents. When appropriate, obtain a personal guarantee as well. You want to know who authorized the purchase, who accepted the terms, and what commitments were made.
Businesses change and payment habits change. A customer may be taking on more debt, falling behind with other suppliers, or dealing with other circumstances you don't know about.
During the holiday buying season, pay close attention to accounts placing larger orders than usual or requesting higher credit limits. The fact that you've done business together before doesn't eliminate the need to evaluate a new level of exposure.
Taking the time to review an application, check references, and look at a current credit report can tell you a lot about a customer before you ship. Just remember that the work doesn't stop once the account is open.
I've been on the supplier side during busy holiday buying seasons, and I understand the pressure to get orders out the door. My advice is not to let that pressure get in the way of doing your due diligence.
Before you ship, run a current JBT Credit Report.
JBT members can order credit reports directly through our online portal.