Willing to Walk Away – Michael Dennis, CBF

Willing to Walk Away
Willing to Walk Away

A new credit applicant company refused to sign our credit agreement or list bank and trade references, or provide financial statements, or sign a personal guarantee.  The VP of Sales stopped in to tell me that this applicant was “important” and could become one of our larger customers.  He added that he would have to “pull out all the stops” if this applicant was rejected.

With this conversation in mind, I met with my manager and explained the situation.  I said I was uncertain how to proceed, but based our standard tools for credit evaluation; the applicant clearly would not qualify for open account terms.   Even if they did, the credit limit I might assign on a good day would be perhaps one-tenth of the credit limit our salesperson had requested.

My manager told me to:

  • stop straddling the fence,
  • stop hoping that she would make the decision for me,
  • stop worrying about the Sales VP’s comments,
  • start thinking logically,
  • start doing my job.

Later that day, she asked what my decision was.  I told her I refused to extend credit.  Her only comment was that if an applicant is unwilling to provide basic information to a new creditor that there is good reason for concern.  In my opinion, this company either (a) had something to hide, or (b) had an inflated opinion about

Michael Dennis, MBA, CBF, LCM
Michael Dennis, MBA, CBF, LCM

their creditworthiness.   In hindsight, I realized she was right.  I had all the information I needed to reject the application. Her approach was a great way for her to reinforce my role and my responsibilities.

That’s my opinion.  What’s yours?

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

6 Replies to “Willing to Walk Away – Michael Dennis, CBF”

  1. We require them to at least fill out the bare minimum info. Company name, shipping/ address, ownership info, what kind of company (corp, LLC etc). THe first page of our app has a place to sign that does not include personal guarantee language and basically states they intend to pay. PG language is on next page. We will not proceed if these things are not done.

  2. Another reason that potential customers may decline to provide basic credit information, for example a personal guarantee, is they feel they are TOO BIG, a Microsoft size company, in which case we have made some exceptions.
    A good salesperson will demonstrate their ability to not only sell product and services, but sell a reluctant applicant on the importance of providing all the inecessary nformation so Credit can then make the best/most informed decision as the the most appropriate credit terms and limits.

  3. I would have rejected the request for line of credit immediately, without thinking twice. The credit application is more than information gathering on a corpoation or sole owner. It is getting your potential customer’s agreement to your company’s terms and authorization to open the account in their company’s name. Without this, should the account become delinquent and require court action to be taken you are out of luck…and the delinquent balance is simply a write off. I even require our applicants requesting C.O.D. terms to sign the application, but do not require the personal guaranty.

  4. Would the bank or credit card company set up an account without the information? Would the sales tax auditor give you a free pass because your customer was TOO BIG to complete a resale certificate? I think not. For very large companies we settle for GM or Regional VP signatures but they still need to fill out 2/3rd of a page of info & a resale certificate.

    One of our reps recently told us, “they’re very big” (I’d never heard of them). Turned out they had many acres with chickens as one of their businesses, what it meant was they dabbled in several small businesses, not that they were able to do lots of volume with us….

  5. We require that our credit application be filled out, with signing of our terms & conditions. We ask for bank reference and 3 trade references. Credit line request over $100K is when we insist on financials and/or P.G. or Corp. Gty….By the way, with credit app in hand, we request a credit report from D&B or FCIB (for international)
    as Dmarc stated “would the bank or credit card co. set up an account without the info?” I don’t think so.

  6. I agree that having a completed credit application is ideal, however the reality is that sometimes we don’t always get what we ask for. This is when we have to use all of our resources that we have as credit professionals in our trade groups to ask if our partners have had experience and to use credit reports, then make sound business decisions.

    If that decision is to deny credit, then so be it. But do we deny every one?

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