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 delivered a past CMA webinar 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.

For more information about CMA’s education program, visit www.CreditManagementAssociation.org/events.

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