5 Tips on What to Check with New Customers
I’ve learned to be very very careful when working with new customers. The point is that when times are tough, it gets tougher to be paid. People are always trying to talk down your price, nickel and dime you, and then rarely gets to a point where a client fails to pay you and you either have to take them to small claims court or file a 1099-C with the IRS. Here are some tips to consider when evaluating your new customers.
1. There are numerous credit reference checks available on-line, which is the best way of finding one that you want and modify it in the form that fits your needs. However, a key portion of that form should be that the vendor provides at least three vendors that you WILL contact and they agree to you being able to contact them inquiring about their payment history.
2. Find out what from these reference checks, is their payment history, how often do they purchase from the vendor, and a general range spent. If they are buying once every 6 months and spending only a few hundred dollars, this is not a great representation even if they pay them within 30 days.
3. Are these potential “buddies” of the business owner who will say anything on your potential customer’s behalf? Try to speak directly with the accounting person, as they often have no ties to the buddy system and they are going to give you a more accurate reading of how they pay their bills.
4. Is your potential customer aware that a 1099-C form is a cancellation of debt on your behalf, which then gets treated as income on their books? After several valid attempts at trying to collect debt or only receiving partial payment on a debt as part of an agreement betwee you and the customer, to claim the expense this form is filled out copies sent to the customer and the IRS. You as the vendor claim the bad debt as an expense, your customer no longer can claim your bill as an expense but as income and is therefore taxed as such. This is something I’ve inserted into my agreements when working with new clients to make them aware of the possibilities of failing to pay their bills.
5. Ultimately go with your gut instinct in checking out a new customer, and if it doesn’t feel right, then it’s not going to be a good fit. I’ve sized up potential customers early on and decided during the evaluation that there are limits to do what I need to do and what I am able to do. If I see a lot of work that needs to be done to get the work fixed and the decision-maker isn’t interested, then I offer a band-aid solution. If they don’t want the band-aid solution and want some spray-on ointment, then it’s not the customer for me. You ultimately have to make the decision for yourself also.
Dwayne J. Briscoe, Owner