What’s so important about the credit application?
The company credit application is truly the workhorse of a credit function, from start to finish. It is the first official document a new prospective customer is exposed to, and the purpose of this vitally important customer information source is more than it seems at first glance.
Not only is the application a chance to get brief, yet detailed information on who you will be extending credit to; it also educates new customers about your own company’s expectations on getting paid and other important information about the new business relationship going forward. Beyond that very important purpose, the credit application contains valuable pieces of investigative information for collection purposes which may become priceless if the relationship deteriorates. It is true if you end up in court, he who has the most paperwork frequently wins.
Given the weight of this document, it is very important that the application be concise, detailed, deliberate and just long enough to get exactly what you need from the customer. No more, no less.
The credit application should ask basic information and require full completion. Incomplete credit applications slow down the whole credit underwriting and approval process, annoying everyone from the customer to sales to credit.
On a very basic level, every credit application should include:
- Complete Company Information (legal name, trade name, federal ID #, address, phone, email, type of corporate operation, year established)
- Owner/Officer/Partner Contact Information
- Banking Reference
- Supplier/Trade Reference
- Terms & Conditions
- Venue & Applicable Law
- Finance Charges
- Purchase Money Security Interest (supporting UCC-1 filing)
- Personal Guarantee (signed with no corporate title)
- Electronic Payment Options
Housing your credit application and supporting documents on a web portal is a smooth and efficient way to offer convenience to the customer, in addition to making sure all required information is submitted. If paper applications are offered, be sure the boxes are large enough to let customers write in the required information.
When a company is acquired, it is not commonly advised to immediately get new customer applications, depending on the language of the original application, but this should be discussed and reviewed as part of the due diligence process. Eventually updating credit files with new applications is a great way to introduce the purchaser to existing customers, providing them with updated contact and product information.
There’s no doubt: a complete, information-rich credit application is a necessary tool to get new customers off to a great start and provide protection on the back end of the relationship.
