Credit applications are usually a way for creditors to collect information about a potential customer and communicate credit and contractual terms. Unfortunately, all too often the credit applications we see at our commercial collection agency are missing key items necessary to protect our clients when their customer goes delinquent. Listed below are some of the most painful situations we encounter at our agency:
- Contact information entered is incomplete which allows the customer to avoid you;
- No acceleration clause included which makes all amounts owed due immediately upon default;
- No clause is included making the customer responsible for all collection costs if non-payment occurs;
- No clause is included making the customer liable for attorney fees;
- Jurisdiction, litigation venue and law provision is not worded correctly;
- No clause is included allowing the vendor to check the business owner’s personal credit;
- Personal guaranty language is not included;
- Design of signature block is not optimal;
For paying customers these items are not important. However, in the case of default, not including these items can cause lower recoveries even when you hire a collection agency.
At our agency, we have an 85% success rate on viable claims, but all too often our clients are forced to accept a discount or a longer than desired payment plan due to the credit application problems listed above.
One big reason why companies fail to include these key items in their credit applications is because they are not considering the debt collection process when they are deciding what to include.
In addition, more often than not, the attorney working on the credit application wording is not an expert on contingency based debt collection litigation.
Nor do the credit professionals involved have direct work experience in a third party collection agency where they would learn firsthand what can make a big difference in debt collection success. Finally, many companies simply use a credit application they are familiar with from another company and change it, keeping the same omissions and poor wording.
Unfortunately, until now there has never been a single easy to access comprehensive credit application resource. We know, because we have tried several times to find one to give to our clients.
We did find an ebook called “In Search of the Perfect Business Credit Application” by The Credit Research Foundation.
This ebook was published in 2005 and sells for $10. It is a 14 page summary of a number of topics based upon the evaluation of almost 100 credit applications and is well worth the investment of $10.
Unfortunately, it does not address many of the issues we frequently deal with at our collection agency. Subscribers to CreditToday have access to articles about these issues (including some authored by me), but the information is published piecemeal and is not comprehensive, and the same holds true for the few other resources we were able to find.
This is why we have created the free 77 page ebook: The Credit Application Handbook. This ebook not only covers all the issues listed above, but also provides sample language to solve each issue. The ebook also includes:
- A check list of 40 items designed to help evaluate proposed or existing credit applications;
- 19 sample credit applications including our two favorites;
- A list of information needed to evaluate the creditworthiness of a potential customer;
- A list of information needed in the event a customer goes delinquent;
- Terms of granting credit;
- Terms to protect the creditor if the customer stops paying;
- Additional terms to include which govern the commercial relationship;
- Sample language options for each term discussed;
- Recommendations for signature block design;
- General advice on how to use the credit application to make optimal credit decisions.
The check list is designed to help you evaluate your credit application and identify deficiencies. The ebook navigation allows you to go directly to specific sections as well as the sample language options relating to each issue.
There is one sample provision which I guaranty will save vendors thousands if not tens of thousands per year which has never been seen before because it is original based on our years of third party debt collection experience.
Check out our ebook and please share it with other credit, accounting and business professionals.
Below are social media icons you can click, or share it using any other means. We look forward to your comments and suggestions – we plan to update the ebook with new information and commentary when appropriate.