According to statistics, after four years, 50% of all small enterprises fail. When conducting business with other small companies, it’s important to consider both your own survival and the survival of your clients. Make every effort to reduce your exposure to your customer’s credit issues.
Beginning: Think about the effects a client’s failure to pay might have on your firm with each customer to whom you give credit. It doesn’t take many nonpaying clients to cause you problems. Get detailed details on the customer when they establish an account: Names of trade creditors; the entire legal name of the organization; and the banking reference.
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Consider requesting a personal guarantee from the owners of tiny corporations: do you want to risk your company’s financial security on someone who won’t personally stand behind his company’s promise to pay?
Cash checks right away if payments are late. Note the dates when checks are received in records. Future business must be contingent on payment for the new items AND some decrease in the outstanding debts. A bankruptcy trustee cannot contest the preferential treatment of “contemporaneous transactions,” which are payments. Courts frequently apply payment to the oldest charges, leaving the payment open to recapture, unless there is proof that payments were for the new products rather than the old debt.
Selling COD offers great defence against preference lawsuits. Do you still believe that possession constitutes ninety percent of the law? Although you may not always have possession of the money, it does provide you negotiating power in a lawsuit in a bankruptcy case to prevent the transfer.