The Importance of Credit Applications

When starting to do business with a customer, it’s in any selling
company’s best interest to be in control of the situation. For this reason, it’s
important for a company to have their own well-constructed credit application
and to take the time to create a form that allows them to dictate the terms of
the business relationship. “If you accept their forms, you are bound by whatever
legal terms they have,” said Greg Hesse of Hunton & Williams, LLP. “It’s
much better to have them fill out your form and get the information you
want.”

Hesse recently delivered an NACM-sponsored teleconference entitled
“The Importance of Credit Applications,” which offered attendees advice on how
to properly use a credit application to get the information necessary to make a
solid decision and to reduce legal exposure.

First, Hesse noted that it’s important for creditors to decide
what they want their credit application to do. “You need to decide if you’re
doing it just for informational purposes or also an agreement,” he said. This
will determine what information you request from the customer on the
application. “If the goal is to get specific information, you should focus the
application and pare it down for that purpose,” he added.

Certain items are critical to the success of any credit
application, like names, addresses and contacts for the officers of the
organization and the company. While these items often go without saying, Hesse
urged attendees not to take this information lightly, noting that creditors
should require specific information, like the legal name of the customer, rather
than just a “doing business as” name or a trade name, the state in which the
organization is incorporated and also the customer’s type of organization,
whether it’s a corporation, a partnership, an LLC, etc. All of these items help
in instances of default and can provide creditors with quick access to
information needed to better prepare them for legal action.

Hesse also offered suggestions on verifying the information
received from a credit application and requiring, in the application, that
customers alert a seller of any changes in ownership or location.

Source: Jacob Barron, NACM staff writer

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