Periodic credit checks of customers a good practice
Toronto business lawyer Inga Andriessen says the longer a business waits to collect monies owed, the more likely you are to run into a customer bankruptcy.
Andriessen recommends businesses get a credit check form that allows them to do periodic checks on the companies they're doing business with.
"Most importantly, you actually have to do the checks," she says. "That way, if you find their payment terms are slowing down, then you can get to a law firm and perhaps be at the front of the line and get paid before the customer goes bankrupt."
Andriessen, principal of Andriessen & Associates, advises companies should conduct an initial check before entering into business with new customers.
"If all is well, then make sure you have the consent of the customer in your initial form that will allow you to conduct periodic credit checks without further permission being required," she says.
Going forward, if you notice any change in payment trends or terms, you should start doing periodic checks.
“If your client always pays you early and then all of a sudden is late with payments, that could be a red flag," Andriessen tells AdvocateDaily.com. "They may be technically within your terms of payment but it could be a warning sign worthy of some due diligence.”
Other warning signals can include news of significant departures or a high turnover of employees.
This may be a good time to visit a law firm to handle a demand letter or commence collection litigation. Don’t let it get to a point where a vendor has owed you a large amount for a long period of time, she says.
“The earlier I get notified, the sooner I can get to the front of the line,” says Andriessen, whose firm provides collection services for all amounts of money.