We are often asked about dealing with customers through sales agents. In New York, basic Agency Law provides that an agent cannot be held responsible for the debt of a disclosed principal, unless the agent specifically agrees to become liable, either jointly or independently. That agreement must be in writing prior to the transaction. We always recommend a Credit Application be obtained from the customer, regardless of whether the order is placed through an agent.
The best thing a creditor/vendor can do is to get an agreement from the principal of the customer where they become independently responsible for payment of the bill in the event that the debtor business does not pay. We have had clients tell us that any Credit Application would “get in the way” or “will kill my business”.
Think about the percentage of your accounts that go to collections. If your delinquency rate is relatively low, requiring a Credit Application might not make statistical sense. If your receivables figure is high from a certain customer, you should take all steps to protect yourself. If you aren’t getting paid, you won’t miss the business and you will actually save yourself time, money and aggravation.
Ultimately, the creditor/vendor has to make an intelligent business decision on whether to require a guaranty agreement prior to doing work for a particular sales agent or customer. If you do require one, include provisions for finance charges and for the recovery of collection fees in the event of a default. That will take the financial sting out of referral to an attorney later.
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