Giving Credit Where Credit Is Due

The effective use of credit applications is a foundational element for success within the lumber industry, and pretty much any other business sector. Here are the basics on how to create a credit application, and make it work for you to strengthen your business.

Credit is a fact of life; getting it is key to obtaining goods and giving it can make or break a company. Credit applications are an essential tool finance managers can use to get to know their customers and, more importantly, forge a mutually beneficial business relationship. It can also help calculate the odds of a new business partner paying its bills on time.

A properly completed credit application is comprised of several critical components, in addition to providing the necessary information to determine if credit is warranted, at what amount, and the risks involved. Applications also give finance managers the necessary permission to contact references, whether bank or trade, and spell out terms, which applicants must acknowledge and accept. When used in conjunction with other sources of information, credit managers can gain valuable insight into a company’s financial health.

Aside from company name and contact information, most credit applications ask for incorporation date and length of time in business, legal entity type (corporation, sole proprietor, partnership, etc.), bank information, and the names of references from multiple trading partners.

All information, however, must be verified, including whether the person submitting the application is authorized to do so. Some sources we interviewed require all credit applications to be signed by a corporate officer (a chief executive officer is ideal—forms signed by lower level managers or sales staff are generally not accepted).

According to Puru Grover, managing director of corporate credit and risk management solutions at Credit Guru in Toronto, Ontario, from a 2016 story published in Produce Blueprints magazine, there are a number of elements that belong on every credit application, including:

• Legal company name, along with any other “doing business as” or trade variations

• Type of business (sole proprietor, partnership, limited liability corporation)

• Sector or industry

• Product or service type

• Number of years in this business sector

• Bank reference(s)

• Trade references – while three seems to be the typical number, some creditors request more

• Website and applicant email address – can help authenticate a business and serve as valuable communication tools

• Terms and conditions – provide clear, concise wording of all terms and conditions

• Disclaimers – always include language detailing the following:

(a) permission to contact banks or financial institutions and trade references – both upon completion of the application and in the future;

(b) the applicant certifies information is true and correct to the best of his/her knowledge;

(c) upon signing, the applicant is bound by the terms and conditions set forth;

(d) a statement regarding allowable interest charges (which can vary by state of jurisdiction); and (e) that a faxed or scanned application can be deemed as original

• Signature – only an authorized individual (generally a company officer) is eligible to fill out and sign the credit application.

To view the original story, click here.

Source: Blue Book Services, Inc.