While it may seem unnecessary to remind a business to know who its customer is, with emerging markets and increasingly complex business structures, knowing your customer is not always obvious. Not knowing who your customer is can lead to lost sales, additional expenses, increased collections costs and non-payment.
Just like your initial doctor visit, your customer’s first transaction should include the completion of a customer questionnaire and application for credit. While this information is critical to billing and customer service, it is also necessary for collection efforts. You should use a standard form to gather all necessary information to service the customer, as well as identify and locate the customer if problems arise. Periodic updating and supplementing of the information, i.e., copies of payment checks, is also necessary. While initial sales via COD or pre-payment are recommended, with new customers to whom you extend credit or provide goods and services before payment you should also obtain a credit application, including credit references, security and a personal guarantee of payment. You also want to ensure the customer has sufficient funds or credit to pay for the purchase and retain a lien on items sold. Personal guarantees, letters of credit and bank financing are some of the ways to provide security for the goods or services that you provide on account.
With the wealth of information available on the internet and otherwise, merely taking information from the customer is often not enough. You should verify key information, checking some information on line and contacting credit references. The Illinois Secretary of State’s website www.sos.stat.il.us allows you to search whether the corporation, LLC or other business entity is actually registered and authorized to conduct business in the State of Illinois. Checking the company website and other public sources can provide additional information that can be helpful if and when a dispute or collection issue arises. The use of trade, business or incomplete names often causes collection problems, as does the failure to have complete and accurate addresses. The more you know the better you are protected.
One of the most fundamental aspects of your business is knowing who your customers are. Implementing proper policies and procedures does not have to be difficult, and is well worth the cost. We advise numerous businesses and professionals on the appropriate type and amount of customer information that should be obtained and maintained. If we can assist you in this matter, please contact me.
Douglas C Tibble