Credit Investigation

Summary

The extent to which you investigate each customer's credit will vary with each case. You will want to consider:

• the size of the order and the potential for future orders;
• the length of time the customer has been in business;
• the status of the present account;
• whether the present product is seasonal and how it relates to the products offered by competition;
• amount of time until delivery;
• relationship of the order to the total credit exposure of the customer;
• where the credit risk falls within the firm's credit policy; and
• if it is a special order, whether a deposit should be required or if it should be COD (charged on delivery).

You will base your credit investigation primarily on past experience of the customer, both yours and the experience of other suppliers as well. Your own customer ledger file is the first place to look. This will give you payment history, high credit, and frequency of purchase. The management background and experience of the firm is a very important factor in its ability to maintain a profitable business. This can be a deciding favourable factor when financial strength is somewhat light, often making the difference between a marginal and an unacceptable credit risk.

Valuable credit information is available from several sources. You can conduct a number of searches to check the credit record of the borrower and verify whether other lenders have existing claims on their assets. The type of credit search you will need depends on the type of business you are in and the amount of credit you want to offer. The most common searches include a Personal Property Registry search, a credit search at a Credit Bureau, a search under the Bank Act, a Corporate search, an insolvency name search, and a search at the Court of Queen's Bench.

Personal Property Registry search

Individual Debtor or Business Debtor Search
In exchange for extending credit to your customers, you can take security on the debtor's assets. This means that if the customer does not pay the debt, you can take possession of their assets, sell it, and take the money you are owed out of the proceeds. Any money received from the sale that is in excess of the amount owed must be returned to the debtor. You should search the Personal Property Registry before accepting personal property as collateral for a loan. The search result will tell you if the personal property is subject to another registration, it also protects the rights of buyers and creditors. This is important because the customer may have already used the property as collateral.

Related Writ and Distribution Seizure Search
Before extending credit it is advisable to search the Personal Property Registry through a Registry Agent to determine if there are any related writs or liens filed against individual and/or business names. It reveals whether there is a legal judgment against the person or business being searched. A judgment is a decision made by a court, and means that the court has ordered that person or business to pay a sum of money. The person who is owed money by your customer may have legal claims to their property and you will have to provide this writ holder with certain notices under various sections of the Civil Enforcement Act. Also, if your customer already has a judgment against them, it probably means that they are a credit risk.
       
To conduct this searches, the Personal Property Information System (PERPIS) is accessible on-line from any Registry Agent in the province of Alberta. Check the Registry Agent Product Catalogue for fees.

Credit Bureau search

The second type of search is a credit search. A credit search provides information about the credit history and credit rating of the person or business you are searching. It will also give you some information about outstanding loan or credit card payments, if the borrower makes payments on time, if there are outstanding liens, and will help you to determine the level of risk involved in giving credit to the customer. To conduct this search, obtain your client's permission and visit a credit bureau, such as Equifax Canada (1-800-465-7166). Credit information can only be obtained by businesses who are registered members of the credit bureau. Membership fees are about $70 a year. It is not possible for individuals to be registered, however, individuals can request their own personal credit check.

Bank Act search

A third type of search is a Bank Act search. Under the Bank Act, chartered banks register with the Bank of Canada their intention to take security in the form of certain assets from borrowers. The Bank of Canada offers a Security Registry service: a register which can be searched for prior registrations. A Bank Act search will reveal whether the Bank of Canada has taken security on the same property that your customer is trying to give you as collateral. If the Bank does have a claim on the property it means that it has loaned your customer money and that it has the right to take possession of and sell the property if the loan is not paid. This is important for you to know for 2 reasons. First, it shows that the person or business you are going to lend money to already has a debt with the Bank and it therefore may not be in a stable financial position. Second, it will show you if the collateral you are supposed to receive is already secured. This search can be conducted in person at the Bank of Canada or by mail. You will need to provide the Bank with the name of the person or business being searched together with a small fee.

Corporate searches

A fourth type of search is a corporate search. A "search" is a request for information from Corporate Registry's records which centralize information on all legal entities, businesses and non profit organizations registered within the province. This information is public and is available to anyone upon request. There are four types of searches that are available:

1. Current Search - current information on organizations such as how long the organization has been in operation, its' address, name of directors and/or shareholders, declarants, etc.
2. Historical Search - the same type of information as given for a current search is available for all legal entities with the exception of trade names and partnerships.  This information is for a specific past date.
3. Certificates of Status - the current status of the organization, i.e., 'Active', 'Struck', etc. Please note, a certificate of status is not available for trade name.
4. Historical Certificates of Status - the status of the organization on a specific past date.

A Corporate search is conducted by an authorized service provider. An authorized service provider can be from a registry agent office, law firm, accounting firm, or search house. You can obtain a list of authorized service providers at: http://governmentservices.gov.ab.ca/cr/crs_delivery.cfm

National Insolvency Name Search

The fifth type of search is a bankruptcy search which tells you whether the person or company being searched has previously filed for bankruptcy. This database of the Office of the Superintendent of Bankruptcy contains a record of all bankruptcies and proposals (a payment arrangement between the debtor and his/her creditors) filed in Canada from 1978 to date. It also contains a record of all private and court appointed receiverships filed in Canada from 1993 to date. All petitions that have been registered in the local offices are also available in the database. There is a minimum $8.00 charge for each search, including those which result in "no record". For more information visit the following web site at: https://strategis.ic.gc.ca/sc_mrksv/bankruptcy/bankruptcySearch/engdoc

Search at the Court of Queen's Bench

A search at the Court of Queen's Bench is another way to find out whether the person or company being searched is or has been a bankrupt. It also reveals whether they have filed a proposal (a payment arrangement with their creditors) under the Bankruptcy and Insolvency Act. There is a minimum $10.00 charge for each search. To obtain the search request form, visit the following web site:  http://www.albertacourts.ab.ca/qb/publication/search_request.pdf