XII. When you have considered these problems, express your thoughts in writing.

 

XIII. Asking about credit rating.

The following material will cover all possible questions as to how to take up references and to ask about a company’s credit rating.

 

Opening

Say who you are and why you want the information. Make it clear that the name of the company you are writing to has been given to you as a reference by your customer.

 

We are a furniture wholesalers and have been asked by L.R. Naismith & Co. Ltd. of 21 Bamsley Road, Sheffield to otter them open account facilities, with quarterly settlement terms. They have given us your name as a reference.

As you will see from the letter heading, we are a glass manufacturers and have recently begun to export to the UK. D.R. Mitchell & Son, who are customers of yours, have placed an order with us, but want to pay by 30-day bill of exchange, and informed us that you would be prepared to act as their referees.

Your branch of the Eastland Bank was given to us as a reference by 1. T.S. Ltd. who have placed a substantial order with us, but want to settle by 40-day draft. As we are a Yugoslav company, we have little knowledge of British companies sand their credit ratings.

 

Details

 

Say exactly what you want to know.

We would like to know if the firm is credit-worthy and has a good reputation. We would be grateful if you could tell us if the firm is reliable in settling its accounts promptly.

Could you let us know if this firm is capable of repaying a loan of this size within the specified time?

Could you tell us if the firm has a good reputation in your country; whether they can be relied on to settle promptly on due dates; and what limit you would place or have placed on credit when dealing with them?

 

If the amount of credit is known, it is usually mentioned.

The credit will be about £2.000.

We do not expect the credit to exceed £500.00.

The draft is for £226.00.

It is unlikely that they will ask for more than a £1,000 credit at this stage.

 

Closing

 

Thank the firm in advance for giving you the information, and tell them you will reciprocate if the opportunity arises. Also let them know that whatever they say in their letter will be treated in the strictest confidence.

We would like to thank you in advance for the information and can assure you that it will be treated in the strictest confidence.

Your help will be appreciated, and the information will be held in confidence. We will return the service should the opportunity arise.

You can be sure that the information will not be disclosed. Thank you for your assistance, and we will reciprocate in a similar situation in the future.

Using an Enquiry Agency

 

We have seen that banks and trade associations will usually only give brief references. Business associates may give more information. An Enquiry Agency will give much more detail about a firm's activities, and for a fee, will research the firm's financial background, its standing, credit-worthiness and ability to repay loans or fulfill obligations. When writing to an Enquiry Agency, therefore, you can ask for more.

We have been asked by D.F. Rowlands Ltd. of Milton Trading Estate, Peterborough, to allow them a creditofup to £5,000 in allowing them to settle by quarterly statements. As we have no knowledge of this firm, would it be possible for you to give us detailed information of their trading activities over, say, the past three years?

The firm named on the enclosed slip has written to us asking if we would allow them to settle by 60-day bill of exchange. Our trading with them so far has only been up to £500.00. But as we know nothing about them or their credit-worthiness, would it be possible for you to investigate their business activities over the past few years and give us a detailed report?

Replying to enquiries about credit rating

 

In most countries there are laws which protect a firm from having its reputation damaged by another company saying or writing things that could harm the firm's good name, and this should be considered when giving details of a company's credit-worthiness, or commenting on its standing.

Refusing to reply

 

There are a number of reasons why you may not wish to reply to an enquiry about one of your customers. If, for example, the company writing to you does not state that you have been named as a referee by their customer, and you do not want to risk offending them, it would be better not to make any comment.

Thank you for your letter concerning our customer, but we cannot give you any information until we get permission from the customer himself. So if you can get the person mentioned in your letter to write to us asking us to act as referees we will give you the necessary information.

As we have not been asked by the person mentioned in your letter to write a reference on their behalf we cannot supply any information about them.

 

If you do not know enough about the company to comment, then it is better to say so.

With reference to the company you mentioned in your letter of 9 October, we are sorry to say we know little about them as we have only supplied them on a couple of occasions. Therefore we cannot give you any details of their trading record or credit standing.

Thank you for your letter, which we received today. Unfortunately, we know nothing about the firm you are enquiring about as our only dealings with them have been on a cash basis. We are sorry that we cannot be of help to you in this matter.

 

Sometimes you may simply not wanttogive any information about a customer whether you know their reputation or not. In this case a polite refusal, generalizing your statements, is the best course of action.

With reference to your letter of October 16 in which you asked about the credit standing of one of our customers, we are sorry to say that we never giveanyinformation about customers to inquirers, and as business associates of ours we are sure you will appreciate that confidence. Perhaps an enquiry agency could be of more help to you in this.

 

Replying unfavorably

 

If you have to write an unfavorable reply it is better not to mention the name of the company. Give only the few facts as they concern you. Do not offer opinions and remind the firm you are writing to, that the information is strictly confidential.

With reference to your letter of 19 April where you asked us to act as referees for the customer mentioned, we have only dealt with this firm on a few occasions but found they tended to delay payment and had to be reminded several times before their account was cleared. But we have no idea of their trading records with other companies. We are sure you will treat this information in the strictest confidence.

In reply to your letter of 14 September concerning the customer you enquired about, we are sorry to say that we cannot recommend the firm as being reliable in their credit dealings, but this is only based on our own experiencesoftrading with them. We offer this information on the strict understanding that it will be treated confidentially.

Replying favorably

 

If giving a favorable reply it is still wise not to mention the customer's name if possible. You can quote that you have yourself allowed credit facilities and also mention that the customer has a good reputation within your trade. In the examples you will see that the reference should still be considered confidential and that the referee takes no responsibility as to how the information is used.

We are pleased to inform you that the firm mentioned in your letter of 7 November is completely reliable and can be trusted to clear their balances promptly on due dates. We find no reason at all for you not offering the facilities they have asked for. However, we take no responsibility as to how this information is used.

With regard to the company mentioned in your letter of 8 December, we are willing to assure you that they have an excellent reputation in dealing with their suppliers, and though we have not given them the credit they have asked you for, we would allow them those facilities it they approached us. Please treat this information in confidence.

 

Letter to a referee

 

Here is another example of taking up references, this one from Satex, the Italian sweater manufacturer we met in previous units. In the letter at 6.3.4, their customer, F. Lynch & Co., asked to be allowed to settle their accounts by 40-day bill of exchange, documents against acceptance. Lynch &. Co. offered references, which Satex are taking up.

 

Satex S.p.A.   Via di Pietra Papa, 00146 Roma Telefono: Roma 769910 Telefax: [phone] Telex: 285136   Mr. T. Grover 4 July 20— Grover Menswear Ltd. Browns Lane Rugeley Staffordshire WS151DR   Dear Mr. Grover,   Your name was given to us by Mr. L. Crane, the chief buyer of F. Lynch & Co. Ltd., Nesson House, Newell Street, Birmingham B3 3EL, who have asked us to allow them to settle their account by 40-day draft. They told us that you would be prepared to act as their referee. We would be grateful if you could confirm that this company settles promptly on due dates, and are sound enough to meet credits of up to £3,000 in transactions. Thank you in advance for the information. Yours sincerely,     D. Causio

 

Referee's reply

 

Note how Mr. Grover says he wilt take no responsibility for how the information is used, and reminds Satex that the letter is confidential.

 

Grover Menswear Ltd. Browns Lane, Rugeley, Staffordshire WS15 1DR Telephone: [phone] Telex: 246181 Mr. D. Causio 9 July 20— Satex S.p.A. Via di Pietra Papa 00146 Roma ITALY Dear Mr. Causio,   We have had confirmation from F. Lynch & Co. Ltd. that they want us to act as referees on their behalf, and can give you the following information. We have been dealing with the firm for ten years and allow them credit facilities of up to £2,000, which they only use occasionally, as they prefer to take advantage of our cash discounts. However, we would have no hesitation in offering them the sort of credit you mentioned, i.e. £3,000, as they are a large reputable organization and very well known in this country. Of course, we take no responsibility for how you use this information, and would remind you to consider it as confidential. Yours sincerely,   T. Grover

 

Questions

 

1. What expression is used to mean for them?

2. How does Mr. Grover explain he will not be liable for Satex's decision?

3. Why does F. Lynch & Co. not use the full credit facilities?

4. What did Mr. Grover do before contacting Satex?

5. What word is used to say the information is private?

 

Negative replies to enquiries about credit rating

 

1. In this letter, the writer refuses to reply because he does not have the company's permission.	Dear Mr. Stevens, I am replying to your letter of 10 August in which you asked about one of our mutual business associates. I am afraid I cannot give you the information you asked for, as it would be a breach of confidence, and you, as one of our customers would appreciate this. If however, you can get the firm to write instructing us to act as their referee, then we may be able to help you. Yours sincerely,
2. The reply in this case is unfavorable. Notice how the writer does not refer to the company by name.	Dear Mr Scrutton, I am answering your enquiry about the company mentioned in your letter to me of 3 May. We have in the past allowed that company credit, but nowhere near the amount you mentioned, and we found they needed at least one reminder before clearing their account. This information is strictly confidential and we take no responsibility as to how it is used. Yours sincerely,
3. The writer of this letter is unable to reply because he has little knowledge of the company.	Dear Mr. Cox, In reply to your letter of 10 August, we cannot offer you any information concerning the firm you asked about in your letter. We have had very little dealing with them and they have never asked for credit of any kind. Therefore any information we gave would be of no relevance. Yours sincerely,

 

Letter to Enquiry Agent

 

Checking on a customer's credit rating with an Enquiry Agency allows the seller to be more specific about the details he wants concerning his customer.

 

P. Marlow & Co. Ltd. 31 Goodge Street. London EC49 4EE Telephone: [phone] Registered in England 221359 Fax: 071 3S37123 VAT240722S03   Mr. S. Spade 9 April 20— Credit Investigations Ltd. 1 Bird Street London El 6TM   Dear Mr. Spade, You were recommended to me by a previous client of yours, S. Greenstreet & Co. Ltd. I would like information about Falcon Retailers Ltd who have asked us to allow them open account facilities with quarterly settlements and credits of up to £5,000. Would you please tell us if this firm has had any bad debts in the past; if any court action has been taken against them to recover overdue accounts; what sort of reputation they have amongst suppliers in the trade; whether they have ever traded under another name, and if they have, whether that business has been subject to bankruptcy proceedings? Please would you make the necessary enquiries, and let us know your fee, so that we can send you a cheque? Yours sincerely,   P. Marlow

 

Questions

 

1. What credit does the buyer want?

2. Why would the supplier want to know if the firm traded under another name?

3. How does he ask if the firm owed money before?

4. Who told Mr Marlow to contact Mr Spade?

5. Which expressions are used to mean late payments; legal action to close the business?

 

Enquiry Agent's reply

 

CREDIT INVESTIGATIONS Ltd. 1 Bird Street. London E1 6TM   Telephone: [phone] Fox: 071 623 1965 Reg.London3121561   Mr. P. Mariow 26 April 20— P. Mariow & Co. Ltd. 31 Goodge Street London EC49 4EE   Dear Mr. Mariow,   We have completed our investigation into Falcon Retailers Ltd, who you enquired about in your letter dated 9 April 19___. The firm is a private limited company with a registered capital of £1,000 and consists of two partners, David and Peter Lorre, It has an annual turnover of £50,000 and has been trading since October 1971. As far as we know neither the company nor its directors have ever been subject to bankruptcy proceedings, but the firm was involved in a court case to recover an outstanding debt on the 17 January 19___. The action was brought by L.D.M. Ltd. and concerned the recovery of £2,150, which Falcon eventually paid. But we ought to point out that L.D.M. broke a delivery contract, which accounted for the delayed payment. From our general enquiries we gather that some of Falcon's suppliers have had to send them second and third reminders before outstanding balances were cleared, but this does not suggest dishonesty so much as a tendency to overbuy which means the company needs time to sell before they can clear their accounts. We hope this information proves useful, and if you have any further enquiries, please contact us. You will find our account for £175.00 enclosed. Yours sincerely,   S. Spade Credit Investigations Ltd. Encl. Account

 

Questions

 

1. Which figure represents Falcon's yearly sales?

2. Have legal proceedings ever been taken against Falcon?

3. Have Falcon ever gone out of business?

4. How many people run that company?

5. Do Falcon pay their debts on due dates?

6. What does Mr. Spade think Falcon's problem is?

7. Which words in the letter correspond to the following: research; asked; yearly income; regain money owed help up?

 

Points to remember

 

1. Credit is only given if the supplier knows his customer well, has a reference from a bank or business associate of his customer, or his customer has an excellent reputation.

2. When asking for credit, say why you want it and convince your supplier that you will pay on due dates. State how long you have been dealing with the company. Offer references to support you.

3. When agreeing to credit, your letter can be short and simple.

4. When refusing credit, you must give reasons and convince your customer that the refusal does not discriminate against him in particular. Using generalizations can help, e.g. we usually/as a rule/normally/do not offer credit facilities.

5. When taking up a reference, tell the firm who you are and who you are enquiring about. Tell them the type of credit involved, e.g. bill of exchange, monthly settlements, and let them know how much the credit is for. Assure them that the information will be in confidence and that you will reciprocate should the occasion arise.

6. When writing a favorable reference, let the firm know you are pleased to offer a reference, and tell them why you think the credit should be offered, e.g. that you have been trading with the firm for a long time and have allowed them credit. Tell the firm the information is given in confidence and without responsibility.

7. When writing an unfavorable reply, if you are not sure what you want to say, simply write that you cannot give information about any of your customers. Or, alternatively, be brief, stating only the facts as they concern you, but do not give opinions.

 

Words to remember

 

credit credit facilities/terms credit-worthy credit rating to ask for credit to grant credit	a due date to settle as account settlement against monthly statements to clear a balance to default a bad debt court action bankruptcy proceedings
a reference a referee to offer/take up references to treat something in confidence confidential a reputation reputable reciprocate	a bill of exchange a banker's draft open account facilities document against acceptance profit margins turnover