Are you selling your stuff or giving it away?

Someone wants to buy your stuff… yippee! A cause for celebration for sure. What do you do next? You give them your stuff and then wait for them to pay you. Unless of course you’re a business who takes cash with an order. In which case there’s no need to read any further!

Trusting to luck

A question for you. Would you walk up to a complete stranger, hand them a wad of cash and ask them to look after it for you for a few days or weeks? And expect to get it back? Well would you?

Okay – you may get lucky. You might select someone with a high moral standing. Someone who is conscientious in their care of your sterling and dutifully returns it to you on the prescribed day. But why would you rely on luck?

So, to go back to selling your stuff. When you give someone your stuff and give them time to pay for it, you’re in essence giving them some of your hard-earned cash to look after. How do you know that customer will pay you back? Because you trust them? On what foundation is that trust built on?

Starting with Cain & Abel, the annals of history are strewn with the exploits of the double-crosser, the conman, the hustler. Jumping forward from Biblical to more modern times take a look at the exploits of Frank Abagnale Jr.

How much would he have been able to achieve had people not been so willing to trust him? His first victim was his own father! Thus showing that you shouldn’t give an automatic trust pass to family.

Know your customer

By this I don’t mean that you need to have met them, know the names of their partners & children etc. I’m talking about being sure that they’re both willing and able to pay you.

There are many ways you can find information about individuals or a business and its directors.

Here I’ll focus on business and directors. Some of them have a price tag attached, other resources are free.

Warning – none are fool proof. People will still lie and lies are not always so easy to spot. But being better informed about who you are doing business with, and allowing to look after your cash, is better than not knowing anything.

Companies House

UK law requires every company in the country to file some form of year-end statement of its financial affairs with Companies House.

The smaller the company the less the detail. And for many there is no requirement for auditing of those financial statements. Companies also have to file a confirmation statement which will list the directors.

Companies House employees admit that it doesn’t check the validity of the content of the documents it receives. Simply that they have been completed correctly and submitted at the appropriate time. However, the financial statements and directors’ details do provide a starting point for your due diligence and access is free.

Credit reference agency report

There are several credit reference agencies out there who will provide a report on a company for a fee. Many prefer you to buy in bulk but some, like Experian, do offer a pay-as-you-go option. The Experian reports cost £19,99 + VAT at the time of writing.

While they do use the financial data from Companies House (see my previous point for why this may not be wholly reliable) they also use a significant amount of data from other sources to generate a score using a complex algorithm. This data will include payment patterns, CCJ & Writs, Directors’ past experiences amongst many others. Generally, the lower the score, the higher the risk of non-payment, or the potential insolvency of the company.

The Prompt Payment Directory

This is a searchable database of businesses that suppliers have rated based on their payment experiences.

A business will only appear on the database if another business has rated them (good or bad) so it’s not a definitive list. But it’s a useful place to check. You can get one-year’s free subscription by rating one of your customers, remember ratings can be positive as well as negative. After that it costs £36 a year.

The Prompt Payment Code

This is a government-backed initiative to set standards for payment practices and best practice. It’s administered by the Chartered Institute of Credit Management. At the time writing there are 2024 signatories to the code and code signatories undertake to pay suppliers on time, with terms agreed at the outset of the contract. See our article about terms and conditions for more information about agreeing terms.

Your business network

Most of us network in the hope that someone will, at some point, either become a customer or refer a potential customer to us. Over time you develop a significant network and there is every chance that your prospective customer has done business with someone within your network. Find out who, and ask them about the experience. What can you learn from it and would they recommend them as someone to do business with?

Be wary of accepting references from your prospect as these may be ‘cultivates’. i.e. a carefully selected supplier who is the only one they pay on time with the specific intention of using them as a trade reference.

Social media reveals all

As individuals, social media is part of our everyday lives. And the same is true for businesses. You can check out a businesses’ pages on Facebook, LinkedIn and their Twitter feed. What are these businesses saying about themselves? Are they talking about development and progress? Are they involved in their local community?

Also check out the directors’ profiles in LinkedIn. What opinions are they sharing? Have they written any articles highlighting their expertise?

Internet search

Make use of your search engine. Plug the company and directors’ names in and see what news pops up about them. Are there good news stories? Or things to concern you?

Armed with all or some of this information you’re ready to make a decision about whether you want to sell your stuff to this prospective customer. ‘But I can’t turn away sales’ I hear you cry. If the information you unearth indicates that things don’t look too rosy for your prospect it doesn’t mean you have to turn away the sale. You have some choices. You can either:

• Go ahead on your existing terms and take that risk
• Go ahead but insist on cash in advance
• Say no

Knowing your customer is about knowing the risk you’re taking: the risk of late payment or the risk of non-payment.

Whether to take that risk or not is up to you and how much money your business can afford to lose.

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