Understanding who your customer is

Now this may sound a little odd but a lot of people don’t actually know who their customer is. But why is this? In the majority of cases, it is because people don’t actually ask! While you may know who your customer is, it is important you know their legal entity too. This is because if you are owed money by a client and you have to take further action, their legal entity is vital to start the ball rolling on retrieving it. If you fail to do so, you may be left with a bad debt and find it difficult to recover through the conventional channels of debt recovery.

Here are the most common types of liabilities:-

Sole trader – Mr Jones t/a Jones Contracts

This is an individual (not a company) who is the business owner. If the business was to fail, it is the individual who faces bankruptcy and they become personally liable to pay any losses to creditors. It is a fact that a sole trader has no obligation to lodge annual accounts but one method to check on them is to carry out a personal credit check on them.

Partnership –Jones & Smith Partnership

An important thing to take on board is that a partnership is to be treated the same as a sole trader.  This is because, in the event you are not paid from a partnership, all partners are joint and severally liable to pay the outstanding debt.

Ltd company – Smith Ltd or Smith Ltd t/a Smith Contracts

A company is to be regarded as a “separate legal entity”.  What this technically means is that a company will have its own credit rating and own bank account. It is important to always check trade references, check how long the limited company have been trading and check the credit rating before approving credit. It is important to note that if the company ceases to trade, is dissolved or liquated before you have been paid, then you can be left with a bad debt. Obviously, this is not what you want so being conscious of this is very important. A shareholder or director of the company is not liable for any debts unless they’ve actually signed a personal guarantee. Bear this in mind.

Public Ltd company (PLC) – Smith Contracts PLC or Smith PLC t/a Smith Contracts

Owned by shareholders, a PLC is listed on the stock exchange with shares being bought by the general public. Similar with a Limited company, it is important to check out a PLC’s credit rating, reviews and how long they have been trading before granting credit. If you have a look about you’ll discover that a PLC company will normally have a lot of published information about them accessible online and via financial press.

As we’ve already said, it is important to know who your customer is. It’s never too late to ask your clients, even ones you’ve engaged with for many years. Here at Cobra Financial Solutions we have a wealth of experience within the debt collection industry and are on hand to help recover what is rightfully yours.

Get in touch with our team of experienced debt collection agents and discover the benefits of understanding who your customers are, and how this can help you ensure your invoices are paid on time, every time.