A thorough credit application is an integral part of any company’s credit management policy, including companies in the construction industry. Credit applications aren’t sexy to look at, but when specifically tailored to fit within the framework of your credit policy as a whole, they can greatly improve your payment funnel, and increase profits. Making sure the customer is credit worthy is important, but it’s only the first step, including the terms under which credit will be extended, and an agreement for both how the credit application will be used, and for the extension of credit, is important as well.
Get Quality Information & Tell Your Customer How You’ll Use It
The fist step in a successful credit application is to make sure the potential customer not only provides complete and correct information, but is also made aware of how the information provided will be used. The information must be accurate because, the information provided will, at least in part, determine the amount of credit to be extended to the customer. Including a clause like the one below can help in making sure (as much as possible) that the information provided by the customer is complete and accurate.
The credit applicant hereby certifies that the information contained in this application is complete and accurate, and the credit applicant understands that the information provided is to be used to determine the amount and conditions of the credit to be extended.
Another important part of the credit application process is to make sure that the potential customer is made aware of how you will use the information. This is partially just good honest business practice, and partially because the customer must consent to you running a credit check – whether business or individual. Including a clause like the following on your credit application will result in the consent required for you to run a credit check and get the information you need.
The credit applicant hereby consents to the obtaining of credit and/or other information to be used at any time in connection to the account applied for by this application, and consents to, and authorizes the release, of any credit and financial information by any bank, trade reference, mortgage holder, landlord, and credit reporting agencies, and expressly consents to [creditor] obtaining a consumer credit report of the undersigned, and a business credit report of the applicant for the purposes of evaluating the credit worthiness of both.
Include Credit/Payment Terms on Credit Application
For some companies, it can be beneficial to include the terms of payment and/or the terms under which credit will be extended on the application itself. If the terms are contained within the credit application itself, it provides a clear proof of receipt of the terms by the customer, and mandates agreement to the payment terms and credit conditions as a prerequisite to credit. It should be noted, however, that if you choose to include the terms on the application itself, any modification to those terms would then need an additional signed document between you and your customer. Businesses that rarely modify their generally applicable credit terms, regardless of the customer, may find it worthwhile to include the terms on the credit application. Businesses that do routinely modify terms over the course of business with one customer, or that want the flexibility to use different terms for different customers, may want to wait until a credit decision has been made before setting out the terms in a separate document.
Use the Credit Application to Secure the Extension of Credit
In a great bit of the credit application performing double duty, it is also possible to use the credit application to secure your extensions of credit – and make the credit application an even stronger part of your credit policy strategy. This is similar to the inclusion of the credit terms on the application in that the decision to include security grants in the application may be a customer-by-customer decision. When used, a personal guarantee, and/or a grant of a security interest, through the credit application itself can secure that debt, and help get you paid. It is important to note that each of those security instruments must be signed individually.
A proper credit application not only provides the information necessary for you to make a decision regarding the credit worthiness of potential customers, it is also the first step in making sure you get paid.