Over the years I’ve worked with several companies and I’ve always made it a point to advise my clients how important it is to have clear credit and collection policies, in which all concerned are educated on these policies. In some cases these companies had little or no credit policy on hand. Their sales department would simply go out and get new clients, and book them under contract. Then once the services were booked, provided, and the client sent an invoice, 31 days later their collection department would contact the patron for payment.
Often, the problem was the customers did not pay timely, or could not pay at all. Their customers were never advised on the company’s payment terms or the consequence of nonpayment, nor were credit applications taken and run on these clients credit worthiness. The result with some of these companies was 25% or more in past-due accounts per month.
Once I started working with these companies, we sat down to work out a clear credit and collection policy which began with a credit application and or contract the sales representative would request the client fill out during the sales negotiations. Some in sales were in opposition to these changes at first, believing it would hurt their chances of getting viable clientele. Once we had everyone in credit, collections, and sales on the same page regarding these new policies, they understood getting their prospective clients to fill out the credit application protected the company later from potential clients who either could not pay due to bad credit or who had bad payment histories.
Recently, I was surprised after I broke my own personal policy, when I accepted to work for a client without checking their credit-background, and without having them committed to a signed contract. We discussed all terms on the phone, and on Friday I immediately sent over our contract for them to sign. On Monday, I contacted their offices again, asking if they had a chance to look over our paperwork, and asked when we could expect to receive the signed documents. I advised we’d like to get everything completed before we started work with them the following week.
Oddly, a couple days went by and we received no call back. I was beginning to think they had decided to go with another contractor, when their Human Resource person contacted us back asking if we were still set to start work with them the following week. I advised that we surly were, however we still needed their signed contract and credit application back (in order to have all information completed by the time we started work with them). The HR person advised that their officers were reviewing our documents with their legal department, and they should be available when we arrive on site for our consulting assignment.
Okay, at this point a red light went off, telling me something “fishy” was going on here. Being this was a rather big client for us, and I did not want to jeopardize our chance to work with them, I ignored my instincts. A week later we arrived as scheduled to start our assignment. Upon sitting down with the client, I reminded them, we were still awaiting the signed contract and credit application. They apologized and said, “The responsible parties were out on holiday the week prior and they would have our signed documents sent to us shortly”.
Against all better judgment, I asked my staff to begin work. By now, you are probably aware all did not work well in this matter. Four days into our work with this client, they advised they did not need our services, and did not feel what we had done thus far, justified payment. With no signed contract (or any signed documents besides a phone conversation) on the table, going legal would most likely be a waste of money and time.
I learned a very valuable lesson, always listen to your gut, and follow your first instincts. Moreover, make sure you always get a signed contract and or credit application (in which you fully research the client’s credit history, in order to validate their credit worthiness) before you start work for them.
