Extending credit to new customers is hard to do without risk. Only banks and credit card companies have made it a core competency. Most of us that choose to extend credit to our customers are stepping outside of our area of expertise. Especially with credit, that can be dangerous.
Because they’re tedious and labor-intensive, credit checks are an important step that’s tempting to skip. But in order to qualify reliable customers, credit checks and references are mandatory and essential. (And even then, the risk of future bad debts still exists.) Having a clear process and some simple tools can help.
- Send the customer the credit application. (Here’s a sample application. If you decide to use the sample application, have the legalese reviewed by a lawyer to ensure that it’s relevant for your particular business.)
- Once the application is returned from the customer, send the credit references an easy-to-fill-out form. (Here’s a sample reference form.)
- Send the reference request using an online fax service like FaxItNice or Grasshopper.* Online fax services can turn emails into faxes, making them far more convenient and easier to track. (Traditional faxes are slow, cumbersome and almost impossible to track effectively within a chain of correspondence.)
- Use an online CRM service that includes a dropbox feature. (Highrise is a great example.) When you send the reference request, BCC your dropbox. With Highrise, the fax number of the reference contact will automatically be added as a new contact in your CRM database. This allows for easy follow up and organized note-taking later on.
- In your email client, open your Sent folder. Create a subfolder (if it’s not already there) called “WaitingFor”. (If you’re using Gmail, create a “WaitingFor” label.) Move the reference request “faxes” from your Sent folder and into your WaitingFor folder.
- Review your WaitingFor folder twice a week and follow up as required.
- Make your credit decision. If you’ve received sufficiently positive credit references, approve the customer for open terms. If not, don’t extend credit.
Last thing: If you don’t receive sufficiently positive references for a new customer, do not extend credit. Request a credit card instead.** Credit checks may be tedious, but chasing aging receivables is far worse…
* Note: With FaxItNice, you don’t own the fax number they give you, so changing to a different provider means you’d lose the number. With Grasshopper, one number serves as both phone and fax, and the number is yours to take with you if you decide to change services.
** If you don’t already have credit card processing set up, use Paypal. The Paypal system is better than most, convenient, deals with multiple currencies and there are no monthly fees for the basic service. In addition, your customers do not need a Paypal account to use the system.
