Credit Application: Beyond the Credit Approval

The company credit application is truly the workhorse of a credit function, from start to finish. It’s frequently the first official document a new prospective customer is exposed to, and the purpose of this vitally important document is more comprehensive than it seems at first glance.

Not only is the application your only chance to get detailed information on who you will be extending credit to, it also educates new customers about your company’s expectations on getting paid and what will unfold if that doesn’t happen. Beyond those two important purposes, the credit application contains valuable pieces of investigative information for collection purposes and becomes priceless if the relationship goes south to the point the legal system gets involved. In the case of law, he who has the most paperwork frequently wins.

Given the weight of this document, it is also important that your application be concise, detailed, deliberate and just long enough to get exactly what you need from the customer; no more, no less.

The trick is to ask enough basic information and require it to be completed in full. Incomplete credit applications slow down the whole credit underwriting and approval process, annoying everyone from customer to sales to credit.

On a very basic level, every credit application should include:

  • Complete Company Information (legal name, trade name, federal ID#, address, phone, email, type of corporate operation, year established)
  • Owner/Officer/Partner Contact Information
  • Banking Reference
  • Supplier/Trade Reference
  • Terms & Conditions
  • Venue & Applicable Law
  • Finance Charges
  • Purchase Money Security Interest (supporting UCC-1 filing)
  • Personal Guarantee
  • Electronic Payment Options

Making the credit application and supporting documents available to customers on a web portal is a smooth and efficient way to offer convenience to the customer, in addition to making sure all required information is submitted. If paper applications are offered, be sure the boxes are not too compact, giving customers room to provide information.

When a company is acquired by another petroleum company it’s not always necessary to immediately get new customer applications, depending on the language of the original application, but should definitely be discussed and reviewed as part of the due diligence process. Updating credit files with new applications eventually can be a good way to introduce the purchaser to existing customers, providing them with updated contact and product information.

There’s no doubt a complete, information-rich credit application is a necessary tool to get new customers off to a great start and also offer protection on the back end in case of collection efforts and possible litigation.

Ann Pitts,

The Pitts Group

Ramping up cash flow through improvements to credit & collection practices

Cell: 817.304.1533