The most important thing a company can do to prevent accounts from becoming delinquent is to weed out potential problem customers during the credit approval process. The most effective tool you have in your arsenal is the credit application.

Too often, we in the collection business are asked to collect an account with little or no supporting documentation. Having that information would have given us an opportunity to dig, scratch and claw for those hard to find dollars. It seems that in some companies the Sales Department is more concerned about the “thrill of closing business” than making sure that the companies are financially able to fulfill their obligation. Some Credit Departments are routinely asked to extend credit to companies that they know virtually nothing about. Extending credit without a proper application is just like hiring an employee without conducting an interview. An integral part of a solid in-house Credit and Collection department is the proper use of an effective credit application.

Vital items for an effective credit application include:

• Landlord and Banking information
• Principals of the Company and references
• Annual sales
• Provision to allow the addition of legal/collection costs
• Personal guaranty with proper signature line

In most industries, more often than not, marginal customers are willing to sign a personal guaranty in order to get credit. This enables us to hold that individual responsible when the company no longer exists as well as virtually assures you that your payments are higher on their list of priorities.

Getting good credit applications submitted to the Credit Department is most often the job of the Sales Department. Many of our clients have instituted programs where each sales person is given points for completed credit applications, and on a monthly or quarterly basis has given out awards of achievement sponsored by the Credit Department. Too often Credit and Sales Departments are butting heads over issues instead of realizing that they are in pursuit of the same goal. While everyone wants to make the sale, the Credit Department also wants to make sure that it gets collected.

VeriCore suggests that every year your company should send out a mass mailing to all current customers and ask them to re-submit a credit application. How many credit applications do you have on file that are 2, 3 or even 4 years old? The state of the economy is too volatile not to keep a close eye on your customers. Companies change hands, switch bank accounts, move to new locations and change owners all too often. When the annual credit application mailing goes out, have your sales staff immediately follow up with their clients with the intention of raising their credit limit within your Credit Department.

How many of your clients are healthier and more financially stable than the first time they established a credit limit with your company? You get to kill two birds with one stone; you get updated information on your customers to better protect your company while also helping your sales staff increase your company’s revenues. What boss wouldn’t love that?

Feel free to view and download a copy of our standard credit application and put it to use today!