Credit Applications - The Key to Successful Collection Efforts

By Neil Murray
With the economy being what it is, your job in accounts receivable is more difficult than ever. It is even more difficult if you happen to be a Credit Manger or Controller and are saddled with the task of granting credit in this very volatile market. History shows that one of the many keys to that process and to successful collection efforts when that account does not pay, is a solid credit application.

Here are some key points to remember when it comes to credit applications:

Have a good solid credit application, not just customer information statement.

Do not beat around the bush in fear of not gaining a customer. You are looking at your customer's ability to repay this and future debts. You are going to extend your company's resources on the hope that they will pay you when the terms dictate. If they want to do business with you, and they are an upstanding company, they will understand. Chances are they have a credit application from their customer.

Do not be afraid to go back and ask for complete information.

Sometimes a prospective customer will rush through the application and omit information that is not in front of them at that moment. Get that information. Sometimes it is lazy omission, and sometimes it is omitted on purpose. You need all of the answers to make an informed lending decision.

Get the Personal Guarantee (PG).

Someone needs to be able to be held personally responsible should the company default. You need that person's name, address, and phone number at the very least. It is even more to your benefit if you can get their social security number, driver's license number, date of birth, etc. The more information you have, the easier it will be to collect down the road.

Set a limit, and stick to it.

A large percentage of accounts that end up in collection are over the agreed upon credit limit. If you set a credit limit, stick to it until you are comfortable with the way the customer is paying. If they have not paid for prior orders, what makes you think they will pay for future orders? Salespeople will accuse you of turning away business, but it is bad business.

Sales are not the key to your success, paid invoices are.

It is not a sale until it is paid for.

Accounts receivable are not assets - they are liabilities.

You can quote me on that!

About the author: Neil Murray is one of the founding partners of Hamilton & Monroe, LLC. Hamilton & Monroe is a professional Commercial Collections firm. They can be found on the web at http://www.hamiltonandmonroe.com, or by calling toll-free (800) 313-9611. If you would like a generic credit application that you can edit and use for your business, please contact us at info@hamiltonandmonroe.com.

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