Take these five steps to determine a potential client or customer’s credit worthiness.
By Darren Dahl, INC.
When Jeff Huckaby started RackAID, an IT management business in Jacksonville, Florida, he considered himself lucky to have landed a couple of larger clients right off the bat. Eventually, those larger clients accounted for as much as 40 percent of his company’s revenue. While Huckaby knew his business was “top heavy,” meaning he was tied to those big customers, he wasn’t worried. Turns out, he should have been. One day, an expected payment from one of his key clients didn’t arrive. When he called up his contact to find out what had happened, no one picked up the phone. A week later, he got a call back telling him that his client was canceling the project because they didn’t have the money to pay for it, despite the fact that his company had already spent money lining up other vendors such as an Internet service provider. The result was that Huckaby not only lost the potential revenue from the contract, he was also out of those out-of-pocket expenses. “It was a nightmare scenario,” Huckaby says.
Stories like Huckaby’s are all too common, especially these days. Companies and consumers alike who are hit by hard economic times will either try to stretch out their payments or, worse, fail to pay at all – something that can be disastrous for a small, growing business. That’s why it’s more important than ever to assess the credit risks associated with selling to a customer before you close the deal, no matter how loud your sales team hollers, says Alex Cote, who heads up marketing at Cortera, a business that provides corporate credit reports based in Boca Raton, Florida. “Obviously everyone needs money coming into the company,” he says. “But you can’t let sales overrule financial prudence.”
Fortunately, there are several steps and actions you can take with your business to try and reduce the risk of selling to that next big customer.
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