Introduction
Whether your customer is a small business or a very large one, it is critically important that you do all you can to ensure they can and will pay you for your expertise, goods or services.
"Woolworths" is just one example of a once massive business that employed thousands of people and turned over hundreds of millions. They went bust and took a lot of small suppliers with them.
You, the Investor
Remember that
before you commit yourself to a commercial party and permit an agency or client to receive your goods or services prior to payment, you must be completely confident that you have made a wise investment, as that is precisely what you are doing. You are investing your time and effort into their company or their client's company.
Taking a few straightforward steps will give you a better chance of ensuring a harmonious and mutually profitable relationship. You should of course be well placed to receive payment. But more critically in the current climate, you must also be prepared to do more than just hope that payment is administered promptly and in full.
Credit Worthy?
Even astute business people employ the most curious criteria in assessing credit worthiness of a client company, or a recruitment company, that they want to engage. Wrongly, and too often, the freelance consultant approaching either type of business thinks:
o They’ll be OK. After all, they are a limited company/PLC
o I’ve heard they’re doing really well
o They’re massive
o They’re a household name
o They’re part of a huge group
o Just look at their prestige address - even the building/road is called after them
Hearsay and casual observation is not sufficient. What
must be deduced for the purposes of a freelancer’s credit assessment is:
1. Who/what are you dealing with?
2. Where are they located?
3. Do they have the money to pay?
4. Are they prepared to part with it promptly?
Knowing your position
One of the most important aids in answering these questions is a good measure of self-confidence. Consider, very carefully, the following assertions:
o A sale is not a sale until the money is in the bank. I shall ensure that it arrives there
o In granting credit facilities to a client, I am making an investment in their business
o It is my duty to safeguard that investment
o I am quite within my rights in seeking answers to questions 1-4 (above)
o I am not doing anything subversive, underhand or devious in enquiring into my applicant's/client’s/ agency’s affairs and I shall display no reticence or shyness in so doing
It is important to extend this self-confidence to recognising your own ‘business clout.’ You may be able to be selective in your choice of clients. If so, take full advantage.
Danger Zones
However ,a notorious 'danger zone' freelancers should beware often occurs from the 5th month onwards; during which time a business, such as a client or agency, may struggle to establish a pattern in meeting its commitments.
Obviously, the older the business, the better it would seem the indications for it's continued survival and success. But do remember that similar ‘danger zones’ are present in the life of every organisation, no matter how established or prestigious-sounding.
Get it in Writing
No matter how large or small your company or consultancy, one of the most important aids in building an accurate profile on your prospective customer or agency, is a well-designed Credit Account Application form. This should be completed, clearly and in full, by the customer to be, or by yourself on behalf of the customer.
Once your applicant has completed the Credit Account Application form, or you are totally confident you know with whom you will be dealing, you can put this to work for you very effectively. Close scrutiny of each section on the form will yield a wealth of information about your prospective customer. We can provide a sample of a credit limit application form upon request or it may be downloaded in our free guide to Credit Control.
Double- Check their Writing
It will be likely that your prospective customer, albeit an agency or client, will wish you to sign a contract. You must be aware that this document, duly signed, could countermand your own terms and conditions.
It is imperative that any contract proffered to you, as a contractor in any sphere, is thoroughly checked by your professional body or a competent lawyer, experienced with contract law. Getting it right at this initial stage will reap considerable benefits in the longer term.
E-documents and Resources
Filing of documents is a legal duty for private and public limited companies. So recruitment, client or payroll companies that are ‘Ltd’ or ‘Plc’ must file annual documents with the Companies Registry. These documents detail the financial state of the company, as well as the names and addresses of those engaged in its management and involved in its ownership.
To get the ‘inside track’ on prospective parties in your contractual chain, you can view some of these documents, relatively inexpensively, by accessing Companies House online. Also, the Professional Contractors Group has access to online credit reporting services which they make available for members.
Documents from Companies House can be particularly useful for limited entities but if you are a freelancer dealing with a proprietorship (or also a partnership), you should always have the owner/s home address together with any business address. This information can prove of vital importance should you encounter difficulties in late payment of invoices.
You can gain insight into the proprietor's payments by using a reputable credit reference agency to carry out a county court judgements check against the place of his / her residence and his place of business.
Beat the information blackout
If freelancers want to obtain financial information upon a fairly new company but it transpires that none is available, they can ask for a copy of the management accounts. If no such copy exists, the contractor should seek some form of security for any dealings with that party. This could take the form of:
o A guarantee from one or more of the directors
o A guarantee from the parent company (if there is one)
o A guarantee from the ultimate holding company (if there is one)
Conclusion
Freelancers should remember that it is their money, services and reputation at stake. As a result it is in the freelancer’s interests to employ due diligence, which the steps recommended above will help you go some way to achieving. Following these steps will increase the chances that client companies, and other commercial entities in your contractual chain, can and will pay you for your services on time, and in full.
Guidance by Sid Home, managing director of Creditsafe Limited, a debt recovery and credit reporting agency.
Editorial image courtesy of BennyLin0724
Mar 2, 2010
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