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should you be doing credit checks October 26, 2017

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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should you be doing credit checks
October 26, 2017
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should you be doing credit checks
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Ken,
   Who do you recommend to run credit checks on individuals and businesses for prospective clients?  Maybe you have someone on the forum you recommend?
Thank you!
Respectfully,
Megan Ingala
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Response
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    I don't run credit checks so I can't recommend anyone.  Anyone out there with a recommendation?
    Whether you should do a credit check on your subscriber depends on your business model; how you market and sell your systems, and what you do with your contracts once signed.  If you are getting paid for the equipment and installation then the credit score may not be essential; you can take a chance because you have been paid for your investment; only your profit is at risk and depends on the performance of the contract over the life of the term.  
    Let's look at when a credit check may be necessary.
    Some alarm companies sell the subscriber contracts for another alarm company [the ADT dealer program], or sell on their own contract form but immediately assign the contract to another alarm company [another dealer program - though I don't know any off hand].  The company who is ultimately acquiring the contracts requires a minimum credit score and may pay different amounts depending on the credit score.  In this case it's required to get the credit score.
    If you offer "free" alarms or "invest" in the upfront cost for equipment and installation, hoping to recoup your investment and profit through the RMR over the life of the contract, then it's important for you to know the credit worthiness of your subscriber.  Like my legal services, you'll probably find out pretty fast that you can install all the alarm systems you want if you install them for free and don't care about getting paid.  The size of your investment should correspond with the likelihood of getting paid, which will correlate closely with the credit score.  This of course refers to individual credit scores, but there are also ways to check on an entity's financial well-being.  You don't want to install a new alarm system for a supermarket that's talking about filing for bankruptcy.  
    One client who was in a dealer program was required to get a Beacon score of at least 560 and was paid more for subscribers with scores above 620.  I am sure many of you out there have more information than I do; I don't, and probably should, check my client's credit score. 
    The Standard Residential All in One Agreement contains a provision to comply with the Fair Credit Reporting Act, a federal law.  If you do credit checks make sure you have this or similar provision in your contract.  It's paragraph 29 in our Residential All in One.  If you don't see it in your form then you know it's time to update.  Call our Contract Administrator Eileen Wagda for assistance.  516 747 6700 x 312
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
516 747 6700
www.KirschenbaumEsq.com