July 28, 2020 Last updated July 28th, 2020 1,285 Reads share

Why You Should Run Background Checks on Partners and Clients

Image Credit: DepositPhotos

Every partner and client relationship created by your company can transform into a sustainable source of revenue. Performing a basic check before investing time and effort into the contact is the best way to establish some level of protection. What is more, it is quick, easy, and free through UnMask or a similar background check provider.

Many contractors and businesspersons make the mistake of believing the court will protect them from most problems by forcing the client to honor the contract. This may be true in most cases, but some disputes can drag on through the legal system for years, racking up huge costs in the process.

When Should you Perform a Check on a Client?

A full background check can take some time, so you need to adopt an effective strategy. As a rule of thumb, you need to research a new client as you invest more resources into them. After signing a contract, do a comprehensive check to make sure it is going to be collectible and enforceable. Assure yourself the client is who they say they are. Verify that the company is doing real and legal business and that the signatory is authorized to represent it, whoever they may be. The project can be launched comfortably, knowing all parties involved are legally protected.

When is a Contract Not Enforceable?

This is usually the case for one of two reasons. The company is legitimate, but the signatory is not listed as a principal. The second reason: the company’s official name doesn’t appear in the region or state’s corporate records, where the contract needs to be enforced. An incorporated business is separate from any group or individual. It is an individual entity. It needs to be registered with the Secretary of State in the state where it operates. A company has to register as a foreign corporation to work in a state different from the one it is incorporated in.

There are exceptions to this rule, but in every event, it must always be possible to find a record for your client in their home state (on the website of the Secretary of State). Generally, these corporate records are freely available online. The information is available in the corporate records section of the site.

Extending Credit to Your Client Without a Check

The risks involved are very real. Typically, contractors want 50% upfront, but it’s not always possible. Bigger clients have an accounts payable cycle of two weeks to a month and stand by it. Without doing a check, you have no way of knowing how much credit to extend to them.

There are many ways to find out whether your client is a legitimate firm, apart from public records. There are corporate credit and information bureaus, credit reporting companies, consultants who specialize in such verifications, and consolidated information sources, among others. When you want to check out a company background, there are many options.

Running Background Checks on Partners

When your and your partner’s value systems differ, this can create a problem in the context of coping with changing market factors or planning business strategies. Some investigation and a background check into former business dealings can make it easier for you to see how things can develop. A background check can show whether your partner has ever been involved in any financial, business, or personal issue that you might find doesn’t correspond to your values. If that’s the case, it may be a warning sign that your business’s profitability or reputation could be compromised at a certain point in time. Have any suppliers or customers lose money in the past? Has your prospective partner been involved in or associated with bankruptcy? A background check can unearth all of this and more.

Your partner’s actions or words can affect your reputation adversely. They might diverge funds from your business if they get in hot water for whatever reason. A thorough background check can discern many of these things. We would recommend conducting a private investigation as well.

Your business might not be able to get some licenses if it turns out your partner has been involved in a punitive process. Their state tax or personal IRS issues may potentially spill over into your mutual endeavor. You need to be aware of any potential issues before agreeing to cooperate with this person.

businessman with magnifying glass -DepositPhotos

Dina Torkia

Dina Torkia

Read Full Bio