By Dean Kaplan+
One way to prevent future debt collection issues is to develop a credit application that collects salient and specific information about the potential new customer. This is the second in a seven part series of articles about how to examine new customers ahead of time to make sound credit decisions. This article will focus on development of a credit application which will gather all necessary information.
The best way to gather credit information about a potential customer is through a credit application. The standardized nature of a credit application makes it possible to collect the same type of data about every new customer. This consistency will promote consistency in credit decisions, and it will also be helpful in terms of the quality of your database.
Below are key data items which should be included in your credit application:
Business general information
a. Business name including any other DBA names used to obtain credit.
b. Telephone and fax numbers
c. E-mail addresses
d. Federal Tax ID Number
f. Description of what the business does
Details about business entity
a. Is the business exempt from sales tax? If yes, submit a copy of the tax exempt certificate.
b. Number of years in business. Number of years in business at current address.
c. Does the business own or rent its current location?
d. Credit references.
o Bank names, addresses, telephone numbers, account names and numbers, officers familiar with the accounts
o Suppliers names, addresses and telephone numbers
o Statements for credit cards used by the business
o A list of customers
e. A copy of the most up-to-date financial statements.
f. Are there any liens or security interests attached to business accounts receivable, inventory or equipment? If yes, secured parties’ names, addresses and telephone numbers.
g. Does the business have any outstanding loans? If yes, names of creditors, names of loan officers, types of loans, original loan amount, present loan balance, amount of monthly payments and any collateral listed.
a. If the business is a sole proprietorship:
o Name of sole proprietor
o Social security number of sole proprietor
o Home address
o Home telephone number and e-mail address
b. If the business is a partnership:
o Names of partners
o Social security numbers of partners
o Home addresses of partners
o Telephone numbers and e-mail addresses of partners
c. If the business is a corporation (or LLC):
o Date of incorporation
o State in which incorporation occurred
o Names of officers
o Names of Board of Directors
Amount of credit the applicant would like to be extended per month.
Authorization from applicant
a. To allow credit department to check credit history and references provided by
b. To allow release of information to credit department by other creditors relating to
applicant’s credit history.
Terms of credit extension
a. Customer agrees to abide by all payment terms set forth on future invoices
b. Customer agrees to pay all state sales taxes
c. Customer agrees to all agreed upon interest rates
d. Customer agrees to pay all collection costs incurred
e. Customer agrees to abide by all governing laws
Personal Guarantees (if applicable)
Not every business requires a personal guarantee on credit extended. If a personal guarantee is required, terms similar to those outlined above would be appropriate relating specifically to the guarantor. A signature by the guarantor on the credit application would also be necessary.
Signature of applicant attesting to the truth and accuracy of the application
Gathering detailed contact and financial information about potential new customers will go a long way in preventing future debt collections. In addition, should an account go delinquent, having all the information from the credit application on hand will make contacting the debtor and pursuing payment much easier. One big challenge in the debt collection arena can be locating the debtor. Accurate contact information is an essential requirement for successful debt collections. If a time comes when accounts receivable collections are out of control, hiring a collection agency might be a way to increase collections success.
Click here if you are ready to go onto the third article in this seven part series Credit Analysis To Promote Successful Debt Collection 3 Of 7. Click here if you missed the previous article Credit Analysis To Promote Successful Debt Collection 1 Of 7.
And be sure to check out the other articles in this series:
- Evaluate New Customers
- Credit Application Development
- Credit References
- Financial Statements and Credit Reports
- Credit Decision
- Purchase Orders
- Identifying A Fraudulent Credit Applicant
The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.