Commercial Credit Application
How to construct a meaningful one.
Grover | Credit Guru Inc. © 1999-2005
for credit generally begins with the completion of a Credit Application.
This information in most cases is procured by the Sales Representative
for the Credit department to make decisions in setting the credit terms
and conditions. It is a direct source of information and its quality and
dependability is directly proportional to the quality of interview with
the subject. The application also extends the information gathering process
by seeking the applicant's Bank and other Trade references. The application
can also request financial statements. Financial statements can contain
inaccuracies or questionable information but it also helps in corroborating
information provided by the applicant on the credit application or through
the Sales representative.
all the accounts should be opened after receiving and evaluating a satisfactory
Credit Application. A well-reviewed account will help save valuable time
in attempting to either collect or enforce in the event of a default.
Credit Application serves the following purposes:
is an information gathering tool
is an assessment tool to determine amount and duration of credit
is a collection tool
is a legal document that binds the applicant to your terms and conditions
is an enforcement tool
is a monitoring tool. Revisit the credit applications of your important
is a marketing tool that markets your loan. In essence a 'loan application'
you are in the process of designing a credit application or reviewing
your existing one, then here are the important issues to consider.
is the information that you require from the applicant for you to
assess the credit worthiness after supplementing it with other credit
information resources like a credit report?
are the terms and conditions of credit and sales that you want the
applicant to adhere to?
are the legal disclaimers that you would require to conduct the credit
the customer find the process simple and easy to comprehend and at the
same time understands why the information is required?
a commercial creditor here is a list of factors that would require attention
in drafting a Credit Application:
Ask for the legal name of the applicant first on your Credit Application
and then ask for the 'Trade style' or 'doing business as'. The company
can operate under different Trade names but will have only one 'Legal'
name. Thus it is important to sign-up the company with its legal name.
of Business and Industry: Which industry does the applicant belong
to and whether the applicant is in a) Retail b) Service c) Wholesale
d) Manufacturing This information will help in evaluating the risk
that you are dealing with. Typically there are a lot more business
failures in a particular industry and especially in the area of Retail
of Product or service the applicant supplies: This will also help
in determining if the applicant's products will compliment and supplement
the product or product line that the applicant is seeking to purchase
from your company.
of Business: Whether the business is a a) Sole Proprietorship
b) Partnership c) Limited liability Corporation. In the case of a
Sole Proprietorship and partnership the liability extends to the individuals
running the business and thus it becomes important that the personal
information of the principals along with their full names, home address
and telephone numbers are sought on the credit application.
Annual Sales: Number of Employees and Estimated Annual Sales not
only gives an idea of the size of the applicant but also helps evaluate
the 'sales to employee' ratio that would indicate if they are over
of years in this business: It is important to ask 'in this business'.
Obvious reasons being that the applicant could have in business for
a long time but could have only recently started this or the current
Reference: Ask for a 'borrowing account'. Get the account numbers
and also the Account Manager's name. Some even insist on a copy of
a void cheque. This helps in a round about way to substantiate the
company's legal name.
References: Normally three references are asked for. However,
asking for more than three could further test the credit worthiness
of your applicant. If possible ask for one Trade reference from your
industry. This could indicate if the applicant is coming to your company
after having shortchanged another from your industry.
site URL and Email address: Email address is a vital tool of communicating
and can aid quick collection and transfer of documents especially
when a customer claims that they have not received the invoice.
officers and accounts payable contacts: email, telephone and fax
Signature: The credit application should be signed by someone
who is authorized to do so. It should then bear the person's title
the date and place.
and conditions: The credit application should bear the terms and
conditions of sale.
Some of the important considerations in writing your disclaimers would
be as follows:
a. Permission to do a check with the applicant's bank/financial
institution and trade references not just at the time of setting up
of the account but from time to time.
b. If you need to check the personal credit history of any
individual or principal then you would require their permission in
writing. If you are making provisions for 'Personal Guarantee' then
make sure that your state/provincial laws do not require that to be
notarized and as a separate addendum.
c. Statement that upon signing the information that has been
provided is certified to be true and correct and that it will be used
and based to make the credit decision.
d. The applicant will be bound by the terms and conditions
on the Credit Application whether on the front or reverse.
e. That a faxed application will be deemed as original
f. A statement of interest to be charged. Certain jurisdictions
might require this as a separate addendum. The allowable rate could
also vary. Check with your attorney regarding the state/provincial
g. Discounts and the definition of overdue.Discounts and payable
h. Statement that no oral agreements or modifications will
be accepted or effective.
i. Statement that in the event of dispute the laws of which
state or province would apply and in which state would be the forum
for the court proceedings.
j. A statement whether the attorney fee or collection cost
will be added on to collect past due accounts.
lawyer should review the final draft of your credit application.
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