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Published Articles by David Balovich

Title: The Credit Application (Continuation)
Published in: Creditworhty News
Date: 9/12/97
What good are the references anyway?

The age old problem with references is:

1. The references are always the customer's best.

2. It is difficult to get information because it is either by mail only or they only provide information between 1:00 and 1:15 on the second Tuesday of every other month.

Neither of the above has to apply. That is solely dependent on us. It is our credit application, not theirs. We should not settle for anything less then the information we require. First, references should be in our industry; if they are purchasing electronics from us, we should not be willing to accept who they purchase office supplies from or who provides them office equipment. We should require references from the electronics industry.

If they are requesting a $50,000 line of credit the references should represent creditors who are selling $50,000 or more. If the applicant can only provide references reporting $5,000 then they have given us no indication that they have the capacity (ability) to maintain a $50,000 payable. Capacity is the second C of credit which should be used to determine a credit line.

Checking references is not only difficult in attempting to obtain the information. How reliable is the information once obtained?

Do we know the individual providing the information? Is there a hidden agenda on their part? How factual / reliable is the information? Are we really talking to who we think we are?

All of these questions have entered the investigator's mind at some point in the credit investigation process. Why not place the burden of credit verification on the applicant? Simply require the applicant to include a copy of their most recent statement from the references they provide. Inform them on the application to attach these statements to the credit application. By doing this, we are obtaining not only the information timely but in many cases we are receiving more information then we would normally obtain through direct contact.

A credit application is not a legal document!

Again the credit application is a source of information. If it were a legal document it would be a requirement of credit. But unfortunately, it's not. It is sad commentary today that more and more firms are not requiring the credit application before providing the customer goods and services.

Many times we think the customer has agreed to our terms and conditions because they are stated on the application and it has been signed. In reality, all that has been signed was the application for the purpose of providing it to those creditors who require written authorization from the customer before releasing information.

We can make it a legal document simply in the way it is presented.

What is necessary are two signatures. One at the conclusion of filling out the information requested and the second after the terms and conditions section. In this manner the customer has signed two documents. One being the credit application and the other being our terms and conditions. Even though they may appear on the same page they are two seperate documents because of the two signatures.

Prior to including the terms and conditions we should review the language with our legal counsel to make certain that what we are requireing the customer to agree to is truly being stated. There is a difference between collection costs and court costs; between finance charges and late charges.

I can't get my customer to sign once, how do I get them to sign twice?

This question often arises and the answer is to change. In this case change the document. Rather then have a credit application we are going to have a credit agreement. What appears at the top of the form will be our terms and conditions at the end of the form we will ask for information and the customer's signature. Now what has been signed is an agreement versus an application and we have a legal document with one signature.


There have been many questions or comments submitted by readers. I will post some of these questions for David Balovich to read and reply to.


What I would like to add would be the "Terms and Conditions", such as right to hold orders if past due, interest charges on overdue invoices, legal and/or collection charges, the right to revoke credit terms if account becomes seriously past-due.

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