Credit Application Basics

A credit application process should be considered an absolute must once the business grows to a point of critical mass and no longer allows the founding entrepreneur behind the business to make every sale, and intimately know every customer.

A credit application serves the following purposes:

ü       It is an information gathering tool.

ü       It is an assessment tool to determine how far you can safely extend terms (amounts and durations).

ü       It is a collection tool in the event of customer default.

ü       It is a legal document that binds the applicant to your terms and conditions.

In designing a credit application consider the following:

ü       What information do you need from the applicant for you to determine the credit worthiness?

ü       What are your terms and conditions of credit and sales?

ü       What are the legal disclaimers that you would require to effectively investigate and manage the account?

 Below are two links to sample Commercial and Consumer Credit Applications

 Commercial Application                Consumer Application

In hindsight, an ounce of prevention is worth a pound of cure.  Entrepreneurs are often concerned that requesting the completion of a credit application by a new customer creates a barrier to sales.  This is a perception simply ground in fear and not fact.  Those prospective customers that cannot take the five minutes of time to complete a quick credit application will most typically be those who cannot find the time to pay you on time.

From 19th century American philosopher and author Henry David Thoreau:

"It is characteristic of wisdom not to do desperate things."

...Some food for thought.  Due diligence pays.

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