Credit Application Basics

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:

  • It is an information gathering tool.
  • It is an assessment tool to determine how far you can safely extend terms (amounts and durations).
  • It is a collection tool in the event of customer default.
  • It is a legal document that binds the applicant to your terms and conditions.

In designing a credit application consider the following:

  • What information do you need from the applicant for you to determine the credit worthiness?
  • What are your terms and conditions of credit and sales?
  • 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

  • [download id=”1696″]
  • [download id=”1698″]

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.