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Dave Hecker
As President of RevMedia, Inc., Dave applies over 15 years of experience to Web application development and implementation. RevMedia provides managed outsourcing services for Web design and development shops around the world.

Dave Hecker has written 3 articles for SitePoint with an average reader rating of 9.

View all articles by Dave Hecker...
Who Are You Dealing With? Client Background Check Essentials
By Dave Hecker
April 26th 2004
Reader Rating: 8.2

Every client relationship your company creates is incredibly valuable -- each has the potential to grow into a long-lasting revenue source.

However, client relationships take considerable time, energy, patience, and effort before they can become a trusted and reliable part of your business. It's a big investment, and when a relationship fails you've usually lost quite a bit of time and effort along the way. In this article, we'll look at several techniques you can use to screen out potentially negative clients such as non-payers, highly litigant clients, clients that are on the brink of bankruptcy, and plain old nightmare clients.

The best way to establish a basic level of protection is to perform basic client screening prior to allocating your precious time and resources to their project. So many Web developers believe that once the contract is signed, they are protected from most problems because the courts will happily force the client to make good on the contract. While this is true in some circumstances, even a small dispute can turn into a years-long nightmare in the court system, with you racking up legal fees every step of the way. Having a binding contract doesn't protect you from an expensive and lengthy process of collections and legal proceedings.

With a little research, however, a surprising amount of these potentially problematic clients can be identified before you expose yourself to any risk. A few simple searches on the Web will provide you with the information you need to make good decisions and handle the potential client appropriately -- and most of these information sites are free.

When Should you do a Background Check on a New Client?
Performing background checks on potential clients can take time, so you'll want to be strategic in your approach. Each situation is different but, as a general rule, you'll want to research the client more thoroughly as you invest more time and resources into that client.

If I'm asked for a proposal by a client that appears to be entirely legit, I'll usually just peruse their Website, and get a feel for their personalities over the phone, before moving forward with the proposal. If the proposal itself is going to take 12 hours because the job is a large one, I might poke around a bit online and perform minimal research before investing the time in preparing the proposal.

Once a deal is in place (i.e. a contract is on the table or a verbal agreement, at least, has been made) I'll usually verify the identity of the company with the corresponding state government, and check a few other free resources (which we'll discuss in a moment) just to make sure there aren't any warning signs.

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Once the agreement is signed, however, it's time to do a comprehensive check on the company and make sure that the contract is going to be enforceable and collectable. My goal is to make sure that the client is who they say they are, confirm that the signatory is authorized to sign on behalf of the company, and verify that the company is legal and doing real business. With those three items in place, we can comfortably begin the project knowing that we are, in fact, legally protected by the contract or legal agreement.

How to Get the Information You Need
Now that you've decided to verify some information about your client, let's take a look at the details you'll be seeking, and where to find them.

Note: The following information is directly relevant to US legal and corporate standards, and may not apply to your location. Although the basic premise of qualifying and confirming client information is always important, local laws and resources may vary.

Step One: Confirm The Client's Identity
You'd be surprised how often I receive a signed contract from a new client, only to find that the contract is completely unenforceable. Why? It's usually due to one of these reasons:


The official name of the company does not exist in the corporate records of the state or region in which the contract needs to be enforceable.

The signatory is signing on behalf of a legitimate company, but is not listed as a principal of that company.

Keep in mind that an incorporated business entity (in the US, a corporation or LLC, but elsewhere, the company could be called a Pty. Ltd., etc.) is an individual entity, separate from any person or group of people. The company must be registered with the Secretary of State in the state in which they're doing business, and the principals (specific people who are authorized to sign and do business on behalf of the company) must be listed by name in the company's corporate filings. Even if a company is incorporated in one state, under U.S. law they must register as a 'foreign corporation' to perform business in a separate state, so this technique should always yield some result.

Exceptions do apply, however, and corporate law is highly complex, but the important thing to remember is that you should always be able to find a record for your client in the Secretary of State's Website in the company's home state, and you should always be able to find evidence that the signatory is a principal of the company and has the legal authority to enter into an agreement on behalf of the company.

These corporate records are generally free and available on the Web. Simply search for the Secretary of State Website in the company's home state and find your way to the corporate records section. Don't know the state in which your client is incorporated? Just ask them -- it's a standard business practice to request this kind of information about a new client.

Now that we know that the organization named on the contract exists, and the signatory is empowered to execute the contract, let's learn a bit more about our client before we start investing in the project.

Step Two: Check The Client's Background
How much work are you willing to do for a client before you get paid? It's easy to say, We need 50% up-front, but that's not always achievable. Larger clients, for example, tend to have a 15-30 day cycle on their accounts payable, and are used to that payment cycle being taken seriously. So, you'll have to make a decision about how much credit to extend them. Here's how.

Having established that this is a legitimate firm, we can expect to find some history about the company in the public corporate records. There are many sources of this information:


credit reporting companies (like Equifax)
corporate credit and information bureaus (like Dunn & Bradstreet)
consolidated information sources (like knowx.com)
consultants who specialize in checking