This Credit Application Language Can Help With Delinquent Accounts
At our commercial collection agency, we often encounter business owners who claim their company’s financial condition is terrible and they can’t pay anything or can make only small payments. It is difficult to verify this information on a private corporation or LLC unless the debtor voluntarily provides company financial statements. But, if we have permission to run a personal credit report, the report can give us many clues as to how best to resolve the matter.
If the report shows the owner has a stellar credit rating and large untapped balances on credit cards, we can negotiate to get them to borrow from the card issuer instead of our client. Even though they don’t have a legal obligation to use personal assets to pay company debts, if they aren’t willing to do this when we have this knowledge, it impacts the decisions we and our clients have to make during the debt collection process.
Alternatively, if their credit cards are maxed out or there are numerous credit issues, we know the debtor could be on the verge of not having the funds to keep things going. At that point we ask our clients to consider settling for a significant discount to at least get something before it is too late or agree to small payments if that is the best we can negotiate.
By law, we have to have written permission to run a personal credit report. That is often difficult to get once an account has entered collections. We do not have this written permission on most of the claims we receive, which prompted me to start a discussion on LinkedIn. I asked if anyone was including this permission statement on their credit applications and several people responded in the affirmative. Many were kind enough to share specific language for other professionals to consider. Here are some examples:
- the undersigned consents to creditor obtaining a consumer credit report on the above listed owner, partner, officer, or guarantor of the corporation, LLC, proprietorship, or partnership for the purpose of evaluating their creditworthiness in connection with an application for business credit;
- I give permission to creditor to request and receive information required to verify depository accounts and credit history. This includes permission to run personal credit check reports …;
- I/We authorize Seller from time to time to obtain Business and Consumer Credit Reports on
Customer or any principals listed above or to obtain credit and funding information from any other persons or entities.
- You may contact any bank and credit rating bureaus to obtain credit information
Back when I owned a small manufacturing company, I would never give vendors a personal guaranty (I would just go to their competition if they wouldn’t extend credit). But, I would have granted permission to run a personal credit report. A couple decades later, I realize what an important tool this can be for a creditor if an account becomes problematic.
About The Author:
Dean Kaplan is Principal at The Kaplan Group. Dean's expertise is widely recognized in the debt collection industry. His advice has been published in a number of industry newsletters such as Credit Today and InsideARM and he is a frequent speaker at industry events.