Start with a proper account application form – one that asks the right questions and gets the right answers so you can make an informed decision on whether this new account is an opportunity or a potential bad debt.
You must establish the correct legal entity of your customer, as credit is based on trust the very first thing you must know is exactly who your customer is. You could have an account for say “Murphy’s Corner Shop” this account could change hands many times and you will never know until there is a problem and then it is too late. You need to know the person or the exact Company name to ensure your invoices are correct.
You need to have all the relevant contact people and direct dial numbers for each of them. What is the point in talking to two people when you only want to talk to one?
You need to get them to sign the form to accept your Terms & Conditions in case of a dispute at a later date.
You need to get a number of Trade References – I would suggest four.
You also need to get a figure from them of what they expect to purchase from you monthly or in the first year, this will determine the level of checking you will do for the application, and needless to say the more they are looking for the more checking you have to do.
Get up to date information, company reports, payment performance, industry trends, and information on each of the directors if the amount is significant for you.
Gather all the information, make a decision, open the account quickly, inform all relevant parties of your decision and write a welcome letter to your customer advising them of your terms and the credit line you have given them together with their contact in your accounts department.
New accounts should be closely monitored for the first three to six months and you need to develop some form of ongoing monitoring to make sure all the money you have on your ledger is secure and collectable when due.
Credit is such a vital part of business today you cannot afford to take any chances, and following these simple guidelines in conjunction with all the other advice I have given you over the years should help your business to survive and thrive.