Do you know your customer?

Do you know who your customer is?

So this might seem like a really odd question to ask but it’s surprising how many organisations that don’t have up to date records of their customers details relating to their legal entity, names of directors and who their “People with significant control” are.

The main reason for this is that they haven’t asked for an update on the current state of affairs or aren’t checking their customers for any changes in their credit status to determine if they are trading under the same status or success as they may have done historically.

If you are owed money and need to go through the collection process, you will need to provide information about your customer as part of this process. In a worst case scenario, you may be left with a bad debt and not be able to recover through the appropriate channels.

Our advice would be to carry out a yearly process where you send each of your customers a “Customer Information” form to fill in. This doesn’t have to be an onerous task, all you need to do ask then to provide details about their organisation and the people within it. You could use the same form part as part of your “New Customer” on boarding process in order to know who you are dealing with from the beginning of your business relationship.

When it comes to legal entities and different types of liability these carry, we have listed below the types you are most likely to encounter –

Sole trader – Joe Bloggs t/a Joe Bloggs Services

• This is an individual and not a company
• As a result, the individual faces bankruptcy and is personally liable to pay any losses to creditors if the business were to fail.
•  A sole trader has no obligation to lodge annual accounts so the best way to review their history and credit status would be to carry out a personal credit check on them.

Partnership or LLP – Bloggs and Co LLP

• From a liability perspective, a partnership is to be treated the same as a sole trader.
• In the event you are not paid from a partnership all named partners are joint and liable to pay the outstanding debt.

Ltd company – Joe Bloggs Limited

• A company is regarded as a “separate legal entity”.
  • This means it will have its own bank account and its own credit rating.
  • A director or shareholder of the company is not liable for any debts unless you made them sign a personal guarantee.
• If the company ceases to trade, is liquidated, or dissolved before you have been paid then you can be left with a bad debt.
• Always check out how long the ltd company have been trading, think about trade trade references and credit checking them before giving out credit.

Public Ltd company (PLC) – Joe Bloggs PLC

• A PLC is owned by shareholders.  These shares can be bought by the general public and are listed on a stock exchange.
• As with an Ltd company – check out their credit rating etc. before giving out credit.
  • A PLC company usually has a lot of published information regarding them through financial press and a websites.

As mentioned at the top of this post, it is vitally important you know who your customer is.  The best way to do this starts with getting your customer to complete some sort of a “New Customer” onboarding process to capture all of the relevant information and complete a credit check. We would also recommend you catch up with your existing customers to capture and maintain the same information.