What good are the
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
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
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.
Question: Re: ALL APPLICATIONS SHOULD REQUIRE THE FOLLOWING INFORMATION
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