Ten Tips on Building a Better Credit Application

1. The Application must state that it must be signed by an Officer of a Corporation, the owner if the applicant is a proprietorship, or a partner if a partnership.
2. The application should be more than simply a tool to gather information.  It should be a contract in which the applicant acknowledges that any future sales are subject to all of the terms and conditions listed in the Credit Application and Agreement notwithstanding any issue battle of the forms related disputed.
3. The Application should include a signed release directing the debtor’s bank to provide information in response to a request for a bank reference or rating.
4. The Application should also include a signed release directing creditors named as references to provide credit references on the applicant company.
5. The Applicant should reference the fact that financial statements are required in order to approve open account terms and direct the Applicant to check a box indicating that financial statements have been attached with the Application when it is returned.
6. If your company has any concerns about confidentiality in connection with the business relationship contemplated with the applicant, the Credit Agreement should either include a Confidentiality / Non Disclosure Agreement or reference this type of Agreement and indicate that signature of such a contract is another requirement for extending credit to the applicant.
7. In the terms and conditions section of the Application, the potential creditor should state that interest will be charged on past due balances.  This clause is often overlooked because creditors usually are unable to collect late fees.  The real value of this clause is not related to day-to-day business.  Instead, this clause helps the creditor to collect both principal and interest if the debtor must be sued at some point in order to collect the balance due.
8. The Application should reference the need for an attached Personal Guaranty to be signed if that is deemed necessary.  Many attorneys feel that the Guaranty should not be a part of the Application itself.  It should be a separate contract sent along with the Credit Application.
9. It is important to review your Credit Application form periodically and make any necessary changes.  For example, rather than simply asking for a list of trade references, you might instead ask the applicant to list only trade references that have extended as much or more in open account terms than the applicant has requested from your company.
10. The application should not be accepted and processed until it is competed and signed.

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