How to Check Out a Principal Before You Sign

Taking on an agency means investing your own time, travel and effort long before you see a penny of commission. If the principal turns out to be unreliable, or worse, goes under owing you money, that investment is gone and you have nothing to show for it. The single biggest risk in agency work is a principal failing while it still owes you commission, so it is worth spending a little time checking a principal out before you sign anything. None of the checks below take long, and together they give you a much clearer picture of who you are dealing with.

Why it is worth checking

Unlike an employee, you are not paid a salary while you find your feet, and you carry the cost of working an area yourself. Take all reasonable steps to satisfy yourself that the company can and will deliver the goods or service, and pay your commission on time. A principal who is impressed that you ask these questions is usually one worth working for. A principal who bristles at them has just told you something useful.

Check the company at Companies House

If the principal trades as a limited company, a great deal is available free on the Companies House register at find-and-update.company-information.service.gov.uk. Search by the exact company name or its registration number and you can see how long it has been trading, who the directors are, whether its accounts and confirmation statements have been filed on time, and whether there are any debts secured against it (these are called charges). Late filings, a very recent incorporation sitting behind an old-sounding trading name, or a run of dissolved companies linked to the same directors are all worth a second look. Make sure you have the correct legal name, as a company’s trading name and its registered name are often different.

Get a credit check

For a more independent view, a commercial credit-checking agency (for example Experian or Creditsafe) will assess the company based on how it actually pays its other suppliers, and usually suggest a safe credit limit. There is a fee, but set against months of your own unpaid work it is normally money well spent, particularly where you expect the principal to owe you a significant amount of commission at any one time.

Ask your own customers

If you are staying in an industry you already sell in, your own customers are one of the best sources of all, and they cost you nothing. Ask them what they make of your prospective principal. Risky companies have a way of drawing attention to themselves, and buyers talk to each other. Do not act on a single opinion, since the problem may have been with that particular customer, but if the same warning comes back from two or three, take it seriously.

Speak to the principal’s other agents

At the meeting, ask the principal for the names and numbers of one or two of his existing agents, and ring them. Because they are self-employed rather than his employees, they have no reason to give you anything but an honest view from an agent’s side of the table: whether commission is paid on time, whether the principal backs his agents, and whether the product actually sells. If the principal is reluctant to put you in touch with any of his agents, ask yourself why.

Warning signs to watch for

As you look into a principal, and as you talk to people in the trade, keep an eye and an ear out for the following. One on its own may mean nothing; several together are a reason to be cautious:

• late deliveries to customers
• constant or unusually heavy discounting
• a recent change of company name
• persistent stock shortages
• high turnover of staff, or of agents
• product claims that sound too good to be true
• an unwillingness to name a single satisfied customer

The point is simply to keep your eyes and ears open, and to be ready to act on what you find.

What to do if something does not add up

None of this means walking away at the first hint of a problem. Every company has an off month, and a single bad report may say more about the person who gave it than about the principal. But if your checks keep pointing the same way, trust them. It is far cheaper to decline an agency before you start than to spend six months building sales for a company that cannot pay you. And if you do decide to go ahead despite some reservations, at least go in with your eyes open, and make sure the written agreement protects you.

Checking the principal out sits between two other steps: winning the agency in the first place, covered in winning an agency and agreeing your terms, and running it well once you have signed, covered in running your sales agency day to day.