Friday, 4 April 2014

Trust - But Verify

The Value of Validating Your Customer & Supply Chain 

     The phrase “Trust-But Verify” comes from an old Russian proverb. Ironically in the 1980’s it was a favorite mantra of Ronald Reagan.  Wikipedia defines it as: a form of advice given which recommends that, while a source of information might be considered reliable, one should perform additional research to verify that such information is accurate, or trustworthy.

     Back when I was a kid and just got into the receivable management business, I had a boss that used this phrase all the time – and it drove me nuts! Today we have staff in two countries and thousands of clients and can now tell you unequivocally that he was right. Trust your customer but don’t be naïve. Trust the information on the new credit application but complete your due diligence check list anyways.

It’s All About Risk Management

     Trusting your customer and vendors is important in business. Validating that your customer and vendors are capable of fulfilling their obligations is of equal importance – maybe even more so.

 So How Do I Trust But Verify?

     There are many ways to satisfy yourself that your client and vendors are capable of doing good consistent business with you. If possible, we recommend visiting your customer or vendors place of business where practical. Have a look around.  Is the yard busy? Does the stock on the shelves look current? What’s happening at their loading dock? Do the employees look busy? Are the phones ringing?
All these indications are good signs of the level of activity that your client or vendor is operating as a going concern.

What If You Can’t Visit?

     If the physical location of your client or vendor makes it impractical to do a premise visit, we recommend retaining the services of a credit investigation firm that maintains the ability to obtain information not readily available. They should have access to corporate records, land titles or deed information. They should have access to construction project data. Additionally they ought to maintain the capability of performing reference checks on trade suppliers and obtaining a bank check. It should be simple to use an investigation firm. Look for a vendor that provides online access and is equally easy to call on the phone.

Surprises are for Birthday Parties – Not Your Business

     In negotiations, information is power. Access to reliable current data on your customer and supply chain will help you to plan and source alternate suppliers if appropriate. Don’t get caught with no place to sit when the music stops.

About the author:  Brad Lohner is a Director of the PCR Group of Companies which owns Priority Credit Recovery, a Canadian commercial collection agency and AccountAdjustment Bureau, Inc., an American commercial agency. The PCR Group also consists of Lien-Pro – Canada’s only Construction and Builders lien filing firm, and Credit Process Advisors – a strategic credit management and accounts receivable outsourcing firm. Priority Credit Recovery and Account Adjustment Bureau are authorized agents of Lumbermen’s Credit Group, a construction and mercantile credit bureau with access to data throughout North America. 

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