posted on 2014-07-25 by Dean Kaplan
Usually vendors use a credit application to collect
information about a new customer and establish credit and contractual
terms. Unfortunately, often the credit
applications we see are deficient in key items necessary to protect our clients
in the event their customers become delinquent.
Below are some of the most painful situations we see at our commercial
collection agency:
·
The contact information is not complete,
allowing the customer to avoid you;
·
There is no acceleration clause included so that
in the case of delinquency, all amounts owed are immediately due;
·
No clause is included making the customer liable
for all collection costs in the event of default;
·
No clause is included making the customer
responsible for attorney costs;
·
Provision for jurisdiction, litigation venue and
law is incorrectly worded;
·
No clause allowing creditor to evaluate personal
credit of business owner;
·
No personal guaranty language is included;
·
Signature block design is inadequate.
These items are not important if your customers all pay on
time. However, these credit application
problems can cause lower recoveries if your customer becomes delinquent and you
send the claim to our third party collection agency. Yes, we have an 85% success rate on viable
claims, but our clients are frequently forced to accept less than what is owed
or longer payment plans because of the credit application problems listed
above.
A big reason for this is due to companies developing their
credit applications without considering the debt collection process. In addition, the attorney working on the
credit application is probably not a specialist in contingency based debt
collection litigation. Nor do the credit
professionals involved have direct work experience at a third party collection
agency which would give them insight into what can make a big difference in the
debt collection process. Finally, often
companies design their credit applications based upon other credit applications
they have seen, keeping the same poor wording and omissions.
Unfortunately, until now there has been no single easy to
find comprehensive credit application resource.
We know, because we have frequently tried to find one to give to our
clients.
We did find an ebook by The Credit Research Foundation
called “In Search of the Perfect Business Credit Application” which sells for
$10. Published in 2005, this 14 page
ebook provides an excellent summary of a number of topics based on evaluation
of nearly 100 credit applications. For
the price, this ebook provides a lot of value, but it does not address many of
the issues we deal with frequently at our collection agency. CreditToday subscribers have access to lots
of articles relating to these issues (including several authored by me), but
the information is presented piecemeal and is not comprehensive, and the same
holds true for the other resources we came across.
This is the reason we have created the 77 page free
ebook: The
Credit Application Handbook. This
ebook covers all the issues listed above and also provides sample language to
solve each of these issues. The ebook
also includes:
·
A check list containing 40 items to help
evaluate existing or proposed credit applications:
·
19 sample credit applications including our
favorite two;
·
A list of information to collect to evaluate a
potential customer’s creditworthiness;
·
A list of information to collect if a customer
stops paying;
·
Terms of granting credit;
·
Terms to include to protect creditor if the
customer goes delinquent;
·
Other terms to include which govern the
commercial relationship;
·
Sample language for each term discussed;
·
Signature block design recommendations;
·
General advice on how best to utilize credit
applications when making credit decisions.
The check list is designed to help you identify deficiencies
in your current credit application. The
ebook navigation allows you to go directly to specific sections and the sample
language options to cover each issue.
There is one sample provision that I can guaranty will save creditors
thousands if not tens of thousands per year that has never been seen before
because it is original based upon our years of commercial debt collection
experience.
Please check out our ebook and share it using the social
media icons listed below or any preferred means with other credit, accounting
and business professionals. We welcome
your comments and suggestions – we will update the ebook with new commentary
and information when appropriate.
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