WHY A BUSINESS NEEDS TO USE A CREDIT APPLICATION
A business credit application is a document used to collect credit information on customers and to get customers to agree to credit and other important terms. If your business extends credit to your customers, you need to get a Credit Application and Agreement from your customers.
Because a Credit Application will provide your business with the information it needs to make an informed decision about whether to extend credit and in what amount. If the account becomes delinquent, the Credit Application will provide essential information that will increase the likelihood that you will be able to collect the amount due.
Because a Credit Agreement will, among many other things, allow you to limit your warranty liability and recover interest and attorney’s fees on delinquent accounts.
Because you can and should add a Personal Guaranty to your Credit Agreement so that if the account becomes delinquent, in addition to pursuing your customer, you will be able to pursue the owner or a corporate officer of your customer, as well as his or her personal assets, for the collection of the account.
While some customers may resist providing information for a Credit Application and entering into a Credit Agreement and Personal Guaranty, there are some marketing tools that can be employed to help persuade your customers to do so.
The language in credit agreements and personal guarantees should be drafted by an experienced business law attorney to insure that your interests, as a creditor, are legally protected.