The credit application is the initial document used by vendors to collect information and establish credit and contractual terms with a customer. Unfortunately, most credit applications we see are missing critical items to protect our clients in the event that their customer does not pay within terms. Some of the most painful issues our collection agency frequently
- Insufficient contact information requested in the event the customer wants to avoid you;
- No acceleration clause of all amounts due under contracts;
- No provision for customer to pay collection costs in the event of default;
- No attorney fee provision;
- Improperly worded litigation venue, jurisdiction and law provision;
- No permission clause to evaluate business owner’s personal credit;
- No personal guaranty language;
- Poorly designed signature block.
These items don’t matter if your customer always pays on time. But, when they don’t, these paperwork deficiencies often directly lead to lower recoveries when matters are referred to our commercial collection agency. While we have an 85% success rate on large viable claims, all too often our clients have to accept discounts or longer payment plans because of one or more of the problems listed above.
An underlying cause for the prevalence of these issues is that the perspective of the debt collection process is not considered when credit applications are developed. Most likely, the attorney involved is not one who makes their living litigating collection matters on a contingency basis. Nor do many credit professionals have the perspective of working at a third-party collection agency with the intimate knowledge of what can make a big difference during that debt collection process. Additionally, most credit applications are developed by looking at other credit applications, so the same problems and omissions get repeated.
Unfortunately, until now, there has been no single comprehensive resource for evaluating current credit applications or developing new ones. We know, because we looked extensively, trying to find a resource for our clients.
The Credit Research Foundation sells for $10 the ebook “In Search Of The Perfect Business Credit Application”. This 14 page ebook published in 2005 is based on evaluating nearly 100 credit applications and provides a great summary of a variety of topics covered in the samples they evaluated. For $10, you can’t go wrong and it provides many valuable insights, but it doesn’t address many of the issues we have encountered. Subscribers to CreditToday have access to a variety of articles on these issues (including some authored by me), but the information is not comprehensive. The same was true for all the other resources we found.
That’s why we have created the free 77 page ebook: The Credit Application Handbook. In addition to explaining the problems described above and providing sample language to solve these issues, the ebook includes:
- A 40 item check list to evaluate existing or proposed credit applications;
- 19 sample credit applications including our 2 favorites;
- List of information to collect to evaluate credit;
- List of information to collect in event of default;
- Terms of granting credit;
- Terms to protect creditor in event of default;
- Other terms governing the commercial relationship;
- Sample language for each term discussed;
- Signature block considerations;
- General advice on credit applications
- Access to Word versions of the sample credit applications so you can customize for your company.
The checklist makes it easy to identify areas where your current credit application may be deficient. The navigation makes it easy to go directly to the section describing the issue and sample language options to cover the matter. I can guaranty you there is one sample provision that can save creditors thousands to tens of thousands or more each year that you’ve never seen before because it is original based on our actual experience.
Check it out and please share with other credit, accounting and business professionals using the social media share icons below or any other means. Please give us your feedback and suggestions – we welcome comments from the community and will update the ebook when appropriate with new information and commentary.