Use credit terms to drive sales.

• Author: Hostetler, Bruce
• Position: Seven suggestions for companies to stay competitive

Successful companies know the key in gaining new business often hinges on the payment terms they extend to their customers. They know placing too many demands on prospects and existing clients can dampen sales. On the other hand, being too lenient in extending credit or in pursuing delinquent receivables can make a company an easy target for nonpaying customers.

I've compiled seven suggestions to help your company stay competitive without risking your profitability.

* Getting asset and bank information up front will help to enforce a judgment, if necessary, at a later date. A comprehensive credit application should be required from all new customers. If practical, obtain a nominal payment for processing (you may choose to position it as a deposit to be credited against the first sale). Ask the customer to submit a voided check to you.

* Attempt to get personal guarantees, especially on new businesses. Your customer's business may have UCC filings, mortgages or judgments, which will probably take priority over your claim in a bankruptcy liquidation. A personal guaranty provides an additional source of payment if your customer's company goes bad.

* Before extending credit, obtain a Social Security number or employer identification number for your customer. You'll need this information to report delinquent accounts to credit bureaus. It also makes it easier to skip-trace those who move without leaving a forwarding address.

* Get customer signatures, even if only by fax, on all appropriate documents. Oral contracts, while valid, are enormously difficult to prove. People looking to avoid payment often claim that there was no contract, or that the contract is not as you think it is, or that you failed to live up to your end of the contract. The customer's signature on your document will help to defeat the...