Credit Applications and Related Legal Issues

After a number of years in the industry, it might be easy for a credit professional to overlook the credit application as something that’s more a part of the landscape than anything else. However, if an account goes bad, a haphazard credit application could make the collection process a lot more difficult. “Credit executives seem to have an attitude of ‘I’ve been around for a long time, I know everything there is to know about credit applications,’”
said Wanda Borges, Esq. of Borges & Associates, LLP in a recent CMA webinar.

Borges noted that while this may be the case, she’s noticed seasoned credit professionals in other presentations obviously being reminded, enlightened and refreshed about some easily overlooked and commonly forgotten credit application strategies. “I hope today for all of you on the line I will either refresh you as to some things you forgot about or teach you some things you never thought about with credit applications,” she added.

Borges delivered on this wish in her teleconference, entitled “Credit Applications and Related Legal Issues,” by offering attendees a quick and effective guide to all the ways a company should protect itself from customer
default and legal exposure using its credit application.

One of the first considerations to make when constructing a credit application is what information needs to be collected. “My primary rule of credit is ‘know thy customer,’” said Borges, who offered a thorough list of what
details should be collected up front to put the creditor in a more advantageous position. Specifically, Borges discussed the importance of getting corporation details, ownership details and to include stipulations about references.

Ownership details, Borges noted, can be of great use should a collection effort be necessary. “You want that information so you can go find them,” she said, adding that every application should require home addresses and ownership interest information for each owner of the business entity. For references, Borges suggested that credit grantors require at least three trade references and also stipulate that they can get references from the customer’s bank. “The trade credit reference is actually going to be the best of their trade credit references,” she said. “You are not limited to the references they give you.”

Borges’ presentation also offered participants text to include in a credit application to protect a creditor from exposure to laws like the Fair Credit Reporting Act, the Equal Credit Opportunity Act and the Fair and Accurate Credit Transactions Act’s disposal rule. She also offered tips on how to clearly organize the application to make sure the customer understands it and can’t reasonably plead ignorance in a court case.

Leave a Reply

Your email address will not be published. Required fields are marked *