How can I offer credit to customers, while still protecting my interests?

“Ask the Legal Professional”
Pittsburgh Business Times – February 20 , 2015

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?

A:   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 agreements. This gives you the right to have a judgment entered against the debtor without trial.
• Get written personal guaranties from the principals of the debtor company, including partners, shareholders and, if necessary, spouses. If you are conducting business in a “tenancy by the entirety” state, such as Pennsylvania, you will not be able to attach jointly held marital property to settle the debts of one spouse.
• Avoid offering credit on “open account.” Instead, create a security interest such as a lien on other assets of the customers.
• Keep tabs on your interests. 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.