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How Much Money is your Credit Application Costing You?

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.

Creative Ideas Solve Credit Risk Problems - How One Credit Manager’s Cre¬ativ¬ity Made the Big Sale Possible

Most credit man­agers have been in this sit­u­a­tion: the com­pany wants to make the big sale, the buyer is ready, but their credit sit­u­a­tion doesn’t make a stan­dard trans­ac­tion pos­si­ble. Bud Rule, who has 40 years of credit expe­ri­ence, recently shared this story of a cre­ative solu­tion he used years ago.

Their com­pany was gear­ing up for the big annual trade show. A sales­man was work­ing with a dealer to place a large at the show. This was a long-term cus­tomer so every­one was happy. But, one prob­lem: the cus­tomer had shown slow­ness in repay­ment and the approved credit limit was not suf­fi­cient enough for the order.

Bud trav­eled to the trade show a cou­ple days in advance for a vari­ety of rea­sons, includ­ing to meet the cus­tomer face to face the day before the show started. The cus­tomer explained the unusual cir­cum­stances that resulted in their cur­rent predica­ment. Bud dis­cussed all the typ­i­cal meth­ods that the cus­tomer might use to gen­er­ate imme­di­ate cash or become more credit wor­thy, but noth­ing panned out.

Bud was under a lot of pres­sure to fig­ure some­thing out. Man­age­ment wanted the inven­tory sold. The sales­man wanted his com­mis­sion. And now a long-term cus­tomer was upset that he was being told “No” on a deal that would really help him.

Dur­ing the con­ver­sa­tion, he couldn’t help but notice the customer’s HUGE dia­mond ring. In a moment of inspi­ra­tion, he asked the cus­tomer if he was will­ing to put the ring up as col­lat­eral. They went out and got it appraised right then and Bud took it back and locked it in the com­pany safe. When the invoices were paid a few months down the road, Bud offered to fly back and deliver the ring. The cus­tomer was so happy with how things worked out that he flew to cor­po­rate to say thank you and put the ring back on his finger.

Bud told me “So many peo­ple look at the Credit Depart­ment as the ‘Sales Pre­ven­tion Depart­ment’. I’ve worked through­out my career to make it the “Assist Sales Depart­ment”. I’m sure many credit pro­fes­sion­als can relate to this.

Bud has had a long and quite pro­duc­tive career. At this stage, he is no longer look­ing for that high pro­file credit man­ager posi­tion and salary. He just wants to stay active (full or part-time) in the credit and col­lec­tion field. So any­one who could use a highly expe­ri­enced pro­fes­sional for daily rou­tine mat­ters or to help improve things, check out Bud’s pro­file on LinkedIn.

And a shout out to all AR pro­fes­sion­als: please con­tact me if you have a story where you have cre­atively solved a credit prob­lem. I want to share more exam­ples with our com­mu­nity so we can all learn from each other.