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Usually vendors use a credit application to collect information about a new customer and establish credit and contractual terms. Unfortunately, often the credit applications we see are deficient in key items necessary to protect our clients in the event their customers become delinquent. Below are some of the most painful situations we see at our commercial collection agency:
· The contact information is not complete, allowing the customer to avoid you;
· There is no acceleration clause included so that in the case of delinquency, all amounts owed are immediately due;
· No clause is included making the customer liable for all collection costs in the event of default;
· No clause is included making the customer responsible for attorney costs;
· Provision for jurisdiction, litigation venue and law is incorrectly worded;
· No clause allowing creditor to evaluate personal credit of business owner;
· No personal guaranty language is included;
· Signature block design is inadequate.
These items are not important if your customers all pay on time. However, these credit application problems can cause lower recoveries if your customer becomes delinquent and you send the claim to our third party collection agency. Yes, we have an 85% success rate on viable claims, but our clients are frequently forced to accept less than what is owed or longer payment plans because of the credit application problems listed above.
A big reason for this is due to companies developing their credit applications without considering the debt collection process. In addition, the attorney working on the credit application is probably not a specialist in contingency based debt collection litigation. Nor do the credit professionals involved have direct work experience at a third party collection agency which would give them insight into what can make a big difference in the debt collection process. Finally, often companies design their credit applications based upon other credit applications they have seen, keeping the same poor wording and omissions.
Unfortunately, until now there has been no single easy to find comprehensive credit application resource. We know, because we have frequently tried to find one to give to our clients.
We did find an ebook by The Credit Research Foundation called “In Search of the Perfect Business Credit Application” which sells for $10. Published in 2005, this 14 page ebook provides an excellent summary of a number of topics based on evaluation of nearly 100 credit applications. For the price, this ebook provides a lot of value, but it does not address many of the issues we deal with frequently at our collection agency. CreditToday subscribers have access to lots of articles relating to these issues (including several authored by me), but the information is presented piecemeal and is not comprehensive, and the same holds true for the other resources we came across.
This is the reason we have created the 77 page free ebook: The Credit Application Handbook. This ebook covers all the issues listed above and also provides sample language to solve each of these issues. The ebook also includes:
· A check list containing 40 items to help evaluate existing or proposed credit applications:
· 19 sample credit applications including our favorite two;
· A list of information to collect to evaluate a potential customer’s creditworthiness;
· A list of information to collect if a customer stops paying;
· Terms of granting credit;
· Terms to include to protect creditor if the customer goes delinquent;
· Other terms to include which govern the commercial relationship;
· Sample language for each term discussed;
· Signature block design recommendations;
· General advice on how best to utilize credit applications when making credit decisions.
The check list is designed to help you identify deficiencies in your current credit application. The ebook navigation allows you to go directly to specific sections and the sample language options to cover each issue. There is one sample provision that I can guaranty will save creditors thousands if not tens of thousands per year that has never been seen before because it is original based upon our years of commercial debt collection experience.
Please check out our ebook and share it using the social media icons listed below or any preferred means with other credit, accounting and business professionals. We welcome your comments and suggestions – we will update the ebook with new commentary and information when appropriate.
Creative Ideas Solve Credit Risk Problems - How One Credit Manager’s Cre¬ativ¬ity Made the Big Sale Possibleposted on 2014-07-16 by Dean Kaplan
Most credit managers have been in this situation: the company wants to make the big sale, the buyer is ready, but their credit situation doesn’t make a standard transaction possible. Bud Rule, who has 40 years of credit experience, recently shared this story of a creative solution he used years ago.
Their company was gearing up for the big annual trade show. A salesman was working with a dealer to place a large at the show. This was a long-term customer so everyone was happy. But, one problem: the customer had shown slowness in repayment and the approved credit limit was not sufficient enough for the order.
Bud traveled to the trade show a couple days in advance for a variety of reasons, including to meet the customer face to face the day before the show started. The customer explained the unusual circumstances that resulted in their current predicament. Bud discussed all the typical methods that the customer might use to generate immediate cash or become more credit worthy, but nothing panned out.
Bud was under a lot of pressure to figure something out. Management wanted the inventory sold. The salesman wanted his commission. And now a long-term customer was upset that he was being told “No” on a deal that would really help him.
During the conversation, he couldn’t help but notice the customer’s HUGE diamond ring. In a moment of inspiration, he asked the customer if he was willing to put the ring up as collateral. They went out and got it appraised right then and Bud took it back and locked it in the company safe. When the invoices were paid a few months down the road, Bud offered to fly back and deliver the ring. The customer was so happy with how things worked out that he flew to corporate to say thank you and put the ring back on his finger.
Bud told me “So many people look at the Credit Department as the ‘Sales Prevention Department’. I’ve worked throughout my career to make it the “Assist Sales Department”. I’m sure many credit professionals can relate to this.
Bud has had a long and quite productive career. At this stage, he is no longer looking for that high profile credit manager position and salary. He just wants to stay active (full or part-time) in the credit and collection field. So anyone who could use a highly experienced professional for daily routine matters or to help improve things, check out Bud’s profile on LinkedIn.
And a shout out to all AR professionals: please contact me if you have a story where you have creatively solved a credit problem. I want to share more examples with our community so we can all learn from each other.
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