Commercial Credit Application; Necessary Components

All customers should be asked to complete and sign a credit application. Ideally, credit applications should be completed before orders are submitted. Orders for new customers should be processed quickly. Prompt handling of initial orders can mean continuing sales.  It is difficult to replace past experience with a customer, so many credit granters take a conservative approach with initial orders, unless the customer's credit rating and size is such that credit risk is not a major concern or if they have not bought for some time.  In processing first orders, there are several key concerns: How much credit is required?  Does the customer have the current resources to pay (i.e., is credit really only a convenience in this instance)?  If the customer does not have resources currently, is it likely that the customer will have them by the time payment is due?  How much credit do other suppliers/vendors offer this customer, and is this request in line with these figures?

Credit applications should contain the following components:

• Ideally, the credit application agreement (contract) should be dated and signed by an officer of the company. This must be someone with the legal authority to bind the corporation to the terms and conditions listed on the credit application and credit agreement. 
• It must include the creditor company name and address. 
• A heading that states the document is a credit application and credit agreement (a contract). 
• The legal name of the applicant. 
• Any trade name or d.b.a. 
• The applicant's billing address. 
• The applicant's corporate headquarters. 
• Whether the applicant is a division, or subsidiary of any other company. 
• The applicant's ship to address or addresses. 
• The officer's names and titles and telephone numbers. 
• A contact name and telephone number for purchasing and for accounts payable. 
• Fax numbers and e-mail addresses for all of the parties listed above. 
• The legal form of business of the applicant entity (For example: a sole ownership, partnership, LLC, S-Corporation, or C Corporation). 
• The type of business (For example: distributor, retailer, wholesaler, manufacturer, broker, or manufacturers representative). 
• One or more bank references including bank name, address, phone number, name of account officer, type of account(s), and account number(s). 
• At least three trade references, including the vendor name, address, telephone number and account number if available. 
• The year the business started. 
• Whether the applicant rents or owns their premises. 
• For a proprietorship, the owner's social security number and a statement allowing the creditor to obtain a personal credit bureau report in connection with its credit investigation. 
• A resale certificate if applicable. 
• A blank copy of the customer's purchase order (front & back) so the credit department can determine if the applicant's "standard" PO terms and conditions are acceptable. 
• The credit limit requested. 
• Estimated annual purchases by the applicant. 
• Terms of sale requested. 
• A request for copies of at least two years financial statements. 
• An agreement as to venue in the event litigation is necessary to collect a past due balance. 
• A provision for interest to be charged on past due balances. 
• A provision requiring the customer to agree to arbitration or binding arbitration relating to a dispute between the parties. 
• A provision requiring the loser to pay reasonable attorneys fees or collection costs in the event the creditor must employ a third party to collect. 
• An authorization to contact bank and trade references, along with instructions signed by the applicant instructing its creditors to provide all the information requested.
• A list of the terms and conditions under which sales will be made.
• A statement that the decision whether to extend credit and for how much and for how long will be made at the discretion of the creditor company.

Optional elements of a commercial ( B2B) credit application include:

• A list of authorized purchasers;
• The applicant's Dun & Bradstreet ® number;
• Any buying group affiliation;
• A personal guarantee form;
• Space for customer comments.

© 2010 by Michael C. Dennis.  All Rights Reserved.  Michael is the author of "1001 Collection Tools and Tips."