Obtaining a signed credit application should be an integral part of the process of extending credit to a customer. The application provides information necessary to determining the risk of not being paid in a timely manner (if at all) and to establish a credit limit. More importantly, it gives you permission to contact bank and trade references and agrees to your terms of sale. I discussed the credit review process at length in a previous article but wanted to provide more detail on the content of a credit application.
A credit application should contain the following information. A template application is available as a Word document Sample Credit Application. You can tailor it to your company’s requirements as necessary.
- Customer Information
- Legal name of business
- Business address
- Billing address (if different)
- Business phone, fax and email
- Incorporation date and length of time in business
- Owner name(s)
- Customer financial information
- Amount of credit requested
- Annual sales
- Most recent full year financials or tax returns available?
- Bank information
- Bank name and branch address
- Account number
- Bank contact name, phone & fax numbers
- Trade references (ask for three)
- Name, address, phone and fax numbers
- Signature block and legal notice
- Owner or authorized party must sign and date application
- Language to certify that signer:
- Declares information provided is correct
- Authorizes contact of references
- Accepts any terms & conditions pertaining to the sale (e.g., late charges)
You may want to go even deeper in some cases and ask for information such as Tax ID, state of incorporation or SIC Code but the primary purpose of a credit application is to get permission to contact references.
Once you have permission to contact references you need to do so. I recommend you call the bank reference since a company’s banker should be in the best position to give you an overview of the health of your prospective customer. Trade references are often contacted by fax, with their responses returned the same way. A trade reference request should include the following questions. Again, a template request is available as a Word document Sample Reference Request.
- Date account opened
- Credit Terms
- High credit:
- Current balance
- Amount past due
- Average days to pay
- Date of last order
- Additional comments or information
- Signature and date
Please keep one thing in mind. You need to independently verify the existence of the customer. A completed application could still contain fraudulent or misleading information and references are chosen with intent. Google is your friend. Search for and confirm the customers address and phone number. Call the number if you have any concerns and tell the person who answers that you are calling to verify the billing address for a new customer.