If your business supplies materials to customers on a credit basis, it is critical to assure that the person who places an order for materials was authorized to do so by the person/entity identified as the creditor on the credit agreement. This will be an essential element of proof when you go to prove up the debt in court.
While this this seems to be the most basic of all questions, i.e., “who placed the order?” there are problems that can occur if your fulfillment process lacks a mechanism to document the identity and authorization of those placing orders.
When proving up a case in court, the judge wants to see that the entity on the contract/credit agreement is the same entity that ordered, received and accepted the materials.
I had a case where the owner of a company listed on the credit agreement denied that the person who placed an order for his company was authorized to do so. The defendant/debtor said the order in question was placed by a former disgruntled employee who went off and set up their own business. The Debtor then denied that his company received the materials because they were not delivered to him but rather to the disgruntled employee’s new job site. None of this was known by my client at the time they filled the order.
When the facts regarding how an order was placed get complicated, it takes more time and money to prove up your collection case. If you document this process with proofs admissible in court, the cost of proving up your case is dramatically reduced.
A good solution for the “Who Placed That Order” problem is to have a system in place which documents who placed an order and assures they are authorized to place it. In the absence of an on-line ordering system, it is a good practice to demand written (and signed) purchase orders using the debtor’s letterhead. Ideally, these PO’s should be faxed or emailed to you so you have proof of when they were sent and received. This dramatically reduces confusion about who placed the order and provides a source of excellent proof at trial. Also, it is imperative that you conduct regular credit audits to make sure that the company named on your credit application is still in business.