Credit professionals experience change on a
daily basis but unfortunately all too often are slow to initiate change.
The credit application is
a primary example. Regulation B of the Equal Credit Opportunity Act states
that the credit application is not a legal document but rather a source of
information. Regardless, the majority of credit applications include legal
information. Terms of sale, late fees, collection and legal fees to be
assessed, an agreement to mediate disputed balances, personal guarantees,
All too often only
one-signature line exists or the customer fails to sign all of the
signature lines, if there is more than one, and without a signature in the
proper place there is no agreement and thus all the legal agreements
become unenforceable. Or perhaps the customer has a better attorney and
they successfully argue that the legalese was buried under the disguise of
a credit application and their client was not fully informed as to what
they were agreeing to when signing what they believed was just an
application for credit.
Today, information about
potential customers can be easily obtained at the federal, state and local
levels for free or a very nominal cost. Websites exist that provide free
credit reports and/or trade references. It is no longer necessary to have
applications that are non-customer friendly and require the applicant to
fill out a detailed credit and business history. All that is necessary
today, to obtain information, is their name, address, telephone number and
contact name. This information requires usually requires less than a
quarter of a page.
If we are so resolved on
obtaining a legal agreement why not retool the credit application into
one? This is not difficult, as it requires that we only invert the
information on our existing application. Begin by changing the name of the
document from “Credit Application” to “Credit Agreement”.
Next, instead of beginning
with the firm name, address, and references list the terms and conditions
that the company not only wants to enforce but also wants the customer to
be aware of. Information such as terms of sale, late fees, return policy,
dispute policy, the address payments are to be mailed to.
After the terms and
conditions ask for the firm name, billing and shipping addresses, Legal
entity, phone numbers, contact names, and estimated monthly purchases.
When the applicant signs
the Credit Agreement only one signature line is necessary because they
have now signed an “Agreement” rather than an “Application”.
By retooling our present
“Application” into an “Agreement” we have provided a legal
document and additional collection tool and at the same time made the
application process more customer friendly.
I wish you well.
information is provided as information only and not legal advice.
Legal advice should be obtained from a competent, licensed attorney,
in good standing with the state bar association.