By Rachel Woods
One of the first steps you should take when signing on a new client to do contract or staffing work is to have them fill out a credit application. This may seem like an old school idea, but it is imperative if you want to keep your business safe. Just think about this: if someone approached a bank to get a loan for $50,000 to $100,000 for staffing, the bank would run all sorts of credit checks before giving them a contract. Another important thing to note from this example is that a credit check/application is done as one of the first steps in a business relationship. Legally, it is very important to have company sign a credit application in the beginning of your business together because you can bury safeguards in it to protect your company.
Credit applications are vital for assessing the risk of working with another company and you cannot set credit lines without it. You need to know their three main trades and how much is in their bank; this information will be critical when deciding how much you can provide in staffing services each month. Set the credit limit now, and with small to medium sized companies continue to have your credit department recheck every six months to a year. In small to medium sized companies, any big changes in management such as CEO turnover, death, or children taking over the company, can affect the monetary value or their company and the kind of credit that they should be extended.
Earlier, it was mentioned that one of the advantages of having a new client sign a credit application in the beginning of your relationship was that you can place safeguards in the contract. Some of the most important safeguards to include are: personal guarantee from the owner or an officer, groundwork for UCC filing, you can check to see if you are getting three trades which help to limit fraud. It is important to note that if a company is not willing to give you their banking information, you DO NOT want to do business with them. Anytime a staffing firm extends credit, there should be complete transparency in their financial status because you need to know what you are getting into.
To reiterate the most important part of this article, from the very beginning you should get a credit application filled out and signed by the owner or an officer. The reason this is so important because this provides a safeguard if a person of lower rank signs the agreement and the company later try to use that to undermine the contract. Also, if you can get a personal guarantee, do it! You do not want to be blindsided when suddenly a client shuts down an LLC and opens one the next day, and you are out of luck; be wary of someone who changes their name because as just stated, you need to know the owner and have a guarantee otherwise they can shut down the LLC, get a quick name change, and leave you with a mess. As a final thought and summary of everything that we have discussed: if they are not willing to bank roll their own business, why should you?
If you have any further questions about how to set a credit line, we offer a webinar that can help you! Feel free to reach out to us at either firstname.lastname@example.org or email@example.com.
Quote 1: Legally, it is very important to have company sign a credit application in the beginning of your business together because you can bury safeguards in it to protect your company.
Quote 2: Credit applications are vital for assessing the risk of working with another company and you cannot set credit lines without it.