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Spotting the bad credit risk - ask before, during, and after the sale.

The following responses or actions can be a sign of a bad credit risk when granting credit to an individual or business. These responses should require additional follow-up to make the credit extension more viable. There are three types of skip customers that credit grantors should be aware of: The customer that accidentally skips invoices due to carelessness in the daily operation of their business; the customer who cannot handle problems in the day-to-day operations of their company and feel that they have to skip; and finally, the deliberate credit manipulator who never intends to pay, even if he or she is satisfied with the product or service. The overall objective of granting credit is to protect your company's assets and turn that credit into a profitable cash sale. Here are some checkpoints to look for before, during, and after the sale.

Before the Sale

* P.O. Box given. No physical address.

* Number of employees in the company.

* Date the company was founded.

* Registration with the Department of Corporations.

* Will not give any personal information such as Social Security or personal address of the individual or officers.

* Will not give any trade or bank references.

* Type of industry.

* Very secretive.

* Dresses poorly.

* Type of building the business is run in.

* Types of vehicle the owner or officers drive.

* Shape of the business office when visiting the customer.

* Customer will not tell you who is liable for the bill.

* "In Care Of" is listed as permanent address.

* Customer will not give out financial information.

* Organizational structure.

* New bank account.

* Offering you post-dated checks.

* Will not sign a personal guaranty, UCC, or security agreement.

* Business is closed during regular business hours.

* Upset when asking for credit information when setting up a credit account.

* Filed bankruptcy in the past.

* Has collection problems on their personal or business credit report.

* No one at place of business knows or wants to talk to you.

* Customer has had numerous disputes with trade references.

* Geographic area of business.

During the Sale

* Layoffs at company.

* Checks do not clear bank.

* Trade and bank references put company on hold.

* Company uses more temporary help to finance payroll.

* Customer slows down on paying accounts payable.

* Customer doesn't return collection calls.

* Numerous promises of payment are not materializing regularly.

* Telephone numbers am being disconnected.

* Receive return mail from customer's business address.

* When calls are made on customer's place of business, no one is in.

* Checking accounts are closed.

* Company is being dissolved.

* Customer disputes pricing more than he or she has in the past.

* Customer continuously requests copies of all open invoices.

* Customer refuses to pay due to performance or quality.

* Customer continuously tells you no one is around to sign check.

* Customer tells you that they pay all creditors in 90 days.

* References start calling to find out current status of customer.

* Inaccurate or constantly adjusted financial statements.

* Unit sales volume decline.

* Administrative expenses growing at a percentage higher than revenues.

* Company reports a negative cash flow from operations.

* Customer's A/R balance in over 90 days is increasing.

* Conversion of A/R, notes payable.

* Tax liens being filed against customer.

* Has numerous overdrafts.

After the Sale

* Bankruptcy is currently in process.

* Receiving return mail.

* Dissolution of company is occurring.

* Partnership is dissolving and partners are currently suing each other.

* References are calling daily.

* Building is locked up.

* Building is empty.

* Telephone numbers have been disconnected.

* New owners.

* Customer business has moved out of geographic location.

* Customer has had bank credit line closed.

* UCC filings have been perfected.

* Judgments have been recorded against the company.

* Garnishments have taken place against the company.

* Repossessions have occurred recently.

* Mechanic liens have been filed against the company projects.

* The company's business license has been suspended.

* Tax liens have been placed on the company.

* Company is delinquent with current references.

* IRS has shut down the company.

* Bank has reduced the line of credit to the company.

* Unsuccessful personal contacts.

* No phone response.

* Financial statements show a negative net worth.

* Sales are dropping quickly.

* Over 90-day old accounts amount to 50 percent of A/R balance.

In today's competitive business environment, a credit and collection person must have the following characteristics in order to track down the skip customers and collect the outstanding credit owing:

* Desire to find the customer.

* Natural inquisitiveness.

* Ability to lead others to communicate.

* Persistence.

* Tact and courtesy.

* Initiative and imagination.

* Patience and self-control.

* Skill in interviewing.

* Politeness and warmth.

Ken Zanolini is the corporate credit manager for SOS Staffing Services, Salt Lake City.
COPYRIGHT 1995 National Association of Credit Management
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1995 Gale, Cengage Learning. All rights reserved.

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Author:Zanolini, Ken
Publication:Business Credit
Date:Jun 1, 1995
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