Master Collections - award winning debt collection

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know your customer

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Knowing your customer by Carlo Pegna

Have you ever thought of running a business with the same rules you followed when growing up? For example the rule of ‘never accept sweets from strangers or talk to strangers’ made sure that you were safe from individuals intent on causing you harm.

Taken in the context of business the rule ensures that you only do business with businesses you know, whether through a long standing relationship or due diligence through credit checks and references. Indeed if you make a habit of doing business with strangers your business is more likely to suffer as a result than a business that doesn’t.

I am currently helping a client that fell victim to a rogue trader. An individual approached the client with a £7,500 order for asphalt. The individual said that they were a buyer of a well-known building company (the Company) that required the asphalt to be delivered to an address in Chester. The client checked out the credit rating of the Company and sure enough it had an excellent credit rating, but the client did not telephone the office of the Company to confirm the order.

Nevertheless on the strength of the credit report the client trusted the individual and supplied the Company, consistent with the individual’s instructions. The asphalt was duly delivered and an invoice issued to the Company’s head office. Shortly after issuing the invoice the client was contacted by the Company to be told that they had raised no such order and have no record at all of a depot or customer in Chester.

As a result the client reported the incident to the Police who are dealing with the criminal element of fraud. However in terms of getting the asphalt back or damages for the value of the same the Police advised the client that it is a civil matter.

In law, title does not pass until paid for. Therefore the client still owns the asphalt and is entitled to the return of the same or damages for their value. On behalf of the client I am pursuing a civil action against the individual that took delivery of the asphalt in Chester.

The original contract has been set-aside on the grounds that it is void by mistake and a credit issued against the Company. All this could have been avoided if the client had called the head office of the Company to confirm the order before agreeing to the same.

Do not offer credit without first inviting the customer to complete a credit application, enabling you to credit check them so that you can be sure that they are good for it. Carry out references not only to satisfy yourself that they are good for credit but more importantly that they are who they say they are. Know your customer, if it is a franchise who is the franchise owner, if a company, do not take their word for it ask for their company registration number, if a firm who is the sole trader or partners and ask for a copy of their passport so you know their legal name.

Knowing your customer isn’t just about being sure who they are from the moment they knock on your door, but also continuing to know whom they are as they change. So be sure to track the risk of your accounts with a Risk Tracker facility to enable you to stop credit before it’s too late.

If your business involves client transactions, as do solicitors with the sale of property, money-laundering regulations are such that unless adequate checks and balances are in place, the solicitor could be prosecuted for money laundering. For example Mr. X purchases property for £250,000 cash. The solicitor does not take any I.D from Mr. X including passport, bank statement and utility bill. Mr. X deposits £250,000 cash proceeds from the sale of cocaine into the solicitors bank account to buy the property, the money is now clean hence the term ‘money laundering’.

The benefit to Mr. X not only is clean money but the purchase of an asset from drug money. However Mr. X is shortly arrested and because the solicitor did not carry out adequate checks on Mr. X, the solicitor is prosecuted for money laundering. Accordingly if your business has the same exposure, as do solicitors it is important that you know your customer to avoid prosecution for money laundering.

Run your business by these rules enables you to operate effectively, you will allow business to come into your life that is good not bad for you.

For more information call Master Collections on 0333 456 0374.