Once you have someone who has agreed to purchase your product or service, it is very exciting. However, there are some things you should consider before invoicing them. Consider verifying the identity of your client, doing a background check and using the information gathered to determine if the client is a likely or not likely to pay off credit if it is extended to them.
Verify the identity of the Company
Any agreement made by you and your client has to be enforceable and if their company doesn't exist, the agreement isn't enforceable. So it is important for you to look beyond your client's website and great personality. After they sign the agreement, do a comprehensive check on the company to make sure the contract will be enforceable and collectable.
Therefore, make sure the client is who they say they are (see if they are registered with the secretary of the state and have them give you a completed W-9 form), confirm that the signatory is authorized to sign on behalf of the company, and verify that the company is legal and doing real business.
Checking the Background
In addition to verifying if the company exists, you should check to see if the company has a clean background. It is common business practice for service-based and even some product-based industries to invoices their clients, net 30 days. Some companies don’t even look at invoicing as extending credit, but it is. If you are invoicing clients, you could allow high risks clients such as non-payers, highly litigate clients, and clients on the brink of bankruptcy a not pay for your product or service. So learn your client’s credit history. You can consult the personal (with their consent in writing) and corporate credit reporting agencies, such as Equifax and Dunn & Bradstreet.
Determine the risk before extending credit
In your research, if were able to verify that the company exist and has a clean background use the information you gathered to decide if you should extend credit. If you found anything suspicious, you should avoid extending credit and require upfront payments. On the other hand, if you found that your client has a good credit history and a clean record, you may consider extending credit or getting paid in installments. After all have done your research and found that the likelihood of you getting paid is extremely high.
These steps can help you put a system in place to protect your business from poor cash flow as well as avoid the likelihood of going through a long and expensive litigation or collection process.
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