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3 April 2024
By Benjamin Scott Blog No comments

Contracts with your new clients: What should my new clients sign before working together? 

You will learn why it is so important to get your new clients to sign an agreement and credit application before doing business with them so if a problem arises you are protected to get paid in full and perhaps your expenses covered to collect the amount. 

I will show you how to set up the client agreement so you have all the protection you need. 

Quick Summary

In you don’t have time to read all the way through, here is an overview of how to set up the best customer agreement: 

  • Get the checklist of important information to get on their company to fill in on your credit application 
  • Get 3 references who are not related or friends
  • Ask for permission to verify in their bank account now and anytime in the future 
  • Ask for the maximum interest rate permitted in case of default by the courts 
  • Have a damage clause of 25% to cover any expenses in the future for a collection agency or lawyer 
  • Get owner information and permission to review their personal credit file 
  • Ask for a personal guarantee from the owner
  • Have all signatures in the right place and dated

If you are looking for more detailed information regarding terms and conditions, be sure to watch a Free training to get a visual of how you can incorporate a few simple strategies for maximum protection with the clients that you are working with. 

How to have the best agreement in place with new customers?

1.Get all the information you need about the company you are working with

The Best way to manage accounts receivables is to ensure you get all the correct information about the business you are dealing with. 

But, why? 

If you get all the proper information you need when first starting with the customer you will be able to confirm your client’s identity. 

This also means if you have to go to court, they may request to see if you had permission to send them invoices in the future.

So, you have to be able to prove to a court who is clearly your customer based on the information you have on the top of your credit application. 

In other words, if this information is not properly filled out, you may not be able to prove who your customer is. This sounds funny because you have invoices that follow. However, having a credit application properly filled out with the correct information gathered minimizes any issues arising about who your customer is. 

If you want to learn more about the credit application system that I teach my clients and use with my own business, you can watch my free masterclass here.

2. Get 3 business references who currently give them credit terms who are not their family and friends 

Why would we ask to verify with 3 other companies providing them credit terms? 

Giving credit to a consumer is easy. There is so much information in the consumer databases. But what about business databases? 

In other words, there is almost nothing available in databases to review if a company is  creditworthy or not. 

To evaluate a business, we have to use totally different methods from how we evaluate a consumer. 

We need to create our own database of information. That is why we ask for at least 3 companies whose new customer currently deals with and has credit. 

What I mean is, we need to call them and ask questions about how our new client pays their bills. 

When we evaluate the business we want to know how much credit they give them each month and if they pay the invoices in 30, 60 or 90 days. 

We also want to know how long they have dealt with them and what kind of customer they are. A problem customer who complains all the time? Or, a great customer who they would highly recommend. 

I explain this best and in much more detail in my training video where my clients get to know more about me and our process. 

3. Ask permission to verify in their bank account now and in the future

Taking the time to review everything at your disposal can save you a lot of time and money in the future. 

Since there isn’t a business database comparable to that of consumers, reviewing several factors before giving credit to a new client is crucial. I explain this in more detail here How to avoid not getting paid by your largest client 

Getting permission from your new clients to look into their bank account and analyzing their line of credit is an important part of the evaluation process.  

More often than I’d like to see, clients don’t analyze their bank account and line of credit. 

Only to find out later they have made several NSF checks and they are not respecting their monthly payments on their line of credit. 

Most clients if asked will fill this part out on the credit application. Then, you have more options and additional protection. 

Once we review their banking situation we have multiple sources of information to make a global credit decision. 

4. Ask for the maximum interest rate permitted and add a damage clause. 

Now that we have information to support our credit decision, we want to add the terms and conditions in the contract that are going to put everything on our side if they default. You can learn more by clicking here how we do this and we explain this entire process in detail. 

Most of our new clients did a google search for terms and conditions and did a copy paste of what they found. Or, they borrowed from a competitor who did a google search a couple years earlier and changed the logo. 

If your new client defaults on you then it will take you time and money to get paid. Getting the maximum amount of interest can be the difference of remaining profitable. Especially if it takes 12-24 months to settle out. 

Also, adding a damage clause of 25% means that if you have to sue the new client or send them to collections, you have the right to add on a damage clause of 25%. This will help to cover any expenses you may have.  

It is critical to understand this process. If you are more of a video person you can watch here where I explain more in detail. 

5. Ask for permission to verify the owner’s personal credit file and get a personal guarantee.  

The video explains how we do this in detail. When you can verify the business owner’s personal credit file you can really accelerate the analyzing process. More often than not, if the business owner personally has a strong credit file, their business will as well. The same for the reverse. 

Also, once you have a personal guarantee, being able to collect an account when the business is in trouble gets easier. It’s all about stacking the chances on your side. 

Points of interest below or you can jump to the video and watch here

-The way we ask for a personal guarantee increases the amount of customers giving permission. 

-A consumer credit file on the business owner is much less expensive than a business credit report. And, you get it instantly. 

-The downside is if the business owner refuses to give you a personal guarantee you may want to re-think why not and go to a paid in advance of providing the service. 

In Conclusion 

I hope this has been clear for you. The best ways to protect yourself with your new clients. 

Once you have your new clients signing your updated terms and conditions, you will have the maximum amount of protection in place. 

During this training video I explain in detail how to avoid your largest client not paying you. Having a great customer agreement signed from the start is where we need to begin. 

We provide all of our new clients with a template credit application with everything they need to have maximum protection.  

You can add your logo onto the document and use it as is. 

Our lawyer reviews our agreement and makes updates annually. Then, we provide the template to our clients. If you hire a lawyer for this it can cost thousands of dollars. Working with us, you share the power of group pricing. 

I have been asked to help with many high balance receivables that were past due. My clients were sometimes very frustrated and anxious about what was going to happen. 

If their customer has a lawyer handling the negotiations, having a fully executed contract in our format gives you a massive advantage.  We want to give the opposing team the least amount of wiggle room when it comes to negotiations. Everything can be explained in more detail here

FAQs

What is a business credit application form? 

A business credit application is a formal document that a company submits for a creditor when applying for a line of credit. This application provides essential information about the business and its finances, helping the creditor evaluate the company’s creditworthiness and ability to repay the debt.  

Are credit applications legally binding?

A credit application is a document that sets the terms and conditions between the creditor and the business applicant. Once signed by both parties it is what governs the relationship moving forward. 

How do I ask customers to fill out my credit application? 

Adapt based on your clients preference. Some do it in person, by email or by online portals. All methods work well and are safe.  

Benjamin ScottBenjamin Scott  is the CEO of Access Credit. For over 10 years, Benjamin has been helping business owners to manage their risk and coaching his clients who have accounts receivable. Benjamin specializes in helping businesses set the right credit terms, have the maximum amount of protection, get paid on time and in full and have the best collection agency or lawyer available if needed. Learn more here

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