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Published Articles by David Balovich

Title: Credit Application or Agreement?
Published in: Creditworthy News
Date: 8/18/04
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, etc.

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.  

This 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.

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