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How to verify the credibility of a client?

Honesty is a key feature, both in everyday life and business. Unfortunately loads of overdue invoices is the everyday problem for many polish and foreign companies, regardless of the business sector in which they operate. In this situation, it becomes extremely important to choose right when it comes to the clients.

How to verify your client? Let’s find out!

Make it offical

The first step in the process of verifying the client’s reliability should be verifying his status as an entrepreneur in one of the commercial registers operating in a country where the client has it’s registered office. Registers of this type operate in many countries and their resources are publicly available, often also online, which makes using this method of verification very easy. In Poland, these are Central Business Records and Information (CEiDG) — in relation to natural persons conducting economic activity and the National Court Register (KRS) — in relation to legal entities such as commercial law companies, associations and foundations.

This method, although the simplest, allows you to verify if we are dealing with a real entity operating on the market, and whether the persons representing this entity are duly authorized to do so.

Detailed information on commercial registers operating in the European Union and additionally Norway, Liechtenstein and Iceland can be found on the pages of European Justice (https://e-justice.europa.eu/content_business_registers_in_member_states-106-en.do?clang=en).

Death and taxes

Just as important as checking data from the commercial register is to verify the status of the client as a VAT payer. This step is facilitated because the European Commission provides us on its website the VIES (VAT Information Exchange System) system (https://ec.europa.eu/taxation_customs/vies/?locale=pl) — a very useful tool for verifying entrepreneurs having their registered office in the European Union.

Some of the EU Member States runs their own VAT status verifying system, unfortunately, due to the territorially limited scope of activity, both VIES and national registers are not perfect. VAT register resources refers only to entrepreneurs with active EU VAT or national VAT, the possession of which is not a requirement in some EU Member States.

Why it is so important? Verification of VAT status is strictly connected with your right to deduct input tax which can be questioned if the taxpayer is proved to commit a tax fraud or participates in a transaction related to this kind of fraud. Tax authorities reserves the right to verify if the taxpayer exercised due diligence in dealing with its contractor and knew or objectively could know that the transaction was related to fraud or tax abuse.

I spy…

Obviously, it is not difficult to imagine it turns out the verification of the client’s data in publicly available registers is impossible or simply insufficient. Then it is time for some sort of espionage… I’m not thinking about anything illegal — just ordinary commercial intelligence. Nowadays, wide range of commercial investigation services is available even for smaller companies and it’s really nothing unusual to purchase a service like this. Everyone should know, that those services also varies due to the scope, level and of course effectiveness.

In it’s simplest and cheapest form, commercial investigation services includes credit information concerning business entities having its data collected in a non-public database. Those data include debit or credit data and information about overdue payments. If it’s not enough and you need something more effective however much more expensive, find an investigator and I’m not thinking of Sherlock Holmes kind of guy. Those investigator reach the client’s former employees, contractors and are able to scan the company’s history giving you full credibility report.

As it was said, only death and taxes are certain. But why do not try to become sure about your client?

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