This feature originally appeared in the December 15th edition of the Pittsburgh Business Times.
Q: As a small business owner, I am wary of extending credit to certain customers, but my business depends on it. How can I offer credit to customers, while still protecting my interests?
Advice: There are some sound strategies you can incorporate into your business practices for tipping the scales in your favor from the start of the transaction.
- Make sure your credit and sales people are on the same page. Set up a standard risk assessment protocol and follow it without fail.
- Include a confession of judgment clause in your agreement. This gives you the right to have a judgment entered against the debtor without trial.
- Get written personal guarantees from the principals of the debtor company.
- Avoid offering credit on “open account.” Instead, create a security interest, such as a lien, on the customer’s other assets.
- Take the time to inspect your secured property to make sure it will be around if you need it. Be sure to have a credit policy that assures you will be informed of any transfers of secured property.