We recently were contacted by a prospective client who was owed over $30,000 for a consulting project. They had a solid contract with their customer and proof that they had performed the work. They had written acceptance of the work product from their customer and a written promise to pay. But six months had gone by with no money.
We were happy to take the claim. But within minutes we knew there was no hope. When we investigated the company name we could not find it as a registered entity. We then did some research on the ‘company’ owner. He had nearly a dozen different entities and dbas registered in his name. Each used the same address – a mail box at a UPS store. Worse, he had 20 judgments outstanding for $2 million dollars, including one from less than a year ago for over $800,000. Plus, he had nearly a dozen tax liens for almost $500,000. The record made it clear that for the last 15 years he doesn’t pay his creditors or the government.
We knew immediately there was no hope in collecting and reported this to our new client. What’s sad is that if this vendor had done even the slightest amount of credit evaluation, they would have known their new customer was never going to pay after the work was completed. They could have insisted on payment in full up front and might still have gotten the project. Otherwise, they could have walked away from the opportunity and at least not been out all the time and energy.
We recently published a free ebook: Business Credit Report Survey. It includes sample credit reports from 7 different providers and a comparison pricing matrix. Individual reports can be purchased from $8 to $188. Some providers have annual subscriptions in the $1,000 to $2,000 range where reports cost as little as 3 cents each. Had this new client of ours run a report that could have cost as little as 3 cents they would have saved themselves from a $30,000 write-off.
Our regular clients who have professional credit management staffs would have identified the credit issue immediately. But millions of smaller businesses don’t have credit managers and frequently extend credit without doing any evaluation. As this example shows, that is a very risky way to operate.