Credit control top tips: Know your customer

This is the first in our series of credit control top tips. Click here to view the next in the series.

This may seem obvious but it is one of the most important rules in credit control.

Most business is conducted on a credit basis and so it is logical that you should take steps early on in the relationship to verify your customer's identity, character and capacity to pay for the goods or services provided.

Most of you know this, but there are some trip hazards, which can fool even the most vigilant of us. A typical example is thinking you are dealing with one limited company, only to find it is the trading name of another company with a completely different name, a partnership or even a sole trader. To make it more difficult, some company structures are organised in such a way that it can be quite confusing to work out who you are actually contracting with.

I've had cases where I've been asked to enforce a judgment against a company, only to find that the company which was sued never existed; we've had to go back and rectify the claim! I've also had cases where shadow directors hide behind the company name, or even where companies are hiding behind the trading name.

At the end of the day, the Companies Act 2006, and subsequent statutory regulations provide that a limited company must disclose its registered name in a number of circumstances, including in all forms of business documentation, including on business letters and its website.

Some top tips then:

  • check that your customers are who they say they are; ask for bank statements or letter headed paper verifying the company identity; make sure this is the same name used on invoices, contracts and purchase orders and on their website
  • check the website for the small print – there should be a notice highlighting the company's details, if any
  • request trade references – a customer who pays other suppliers promptly should have no problem in providing these
  • carry out a credit check – this will keep you fully informed about how you conduct business with your customers. If the credit score is low, consider requesting payment on account.
  • establish a contact name, most helpfully this will be a person of director level in a company, or partner in a partnership.

Can we help?

Our experienced team would be happy to help with any queries which you may have and would be happy to discuss how we can help you avoid any potential pitfalls in knowing your customer. Please contact Bill Duncan if you have any queries.