Avoiding the Pitfalls of an Outdated Credit Application
One of the things I enjoy doing is sharing the challenges that some of our clients are experiencing.?Learning from their issues is how we continue to be a work in progress, avoid the same mistakes, and improve on the performance of our credit risk management systems.?
The other day we received several files for collection from a new client. Upon opening the attached files, we were very pleased with all of the documentation that was provided. Usually, we need to request emails or statements but right from the get-go, all the documents to support the claims appeared to be there. In particular, at first glance I was especially happy to see the new customer credit application included with each file. So often we are able to glean very important company and individual details that facilitates the collection process.?
Looking carefully at each application, I noticed something strange. They seemed like old documents. I could see a lot of smudges, a couple of fingerprints, and discoloration of the ink. Scrolling down the pages and getting to the end to confirm signatures and dates, I was a little taken aback when I realized the applications were prepared in the late 1980’s and early 1990’s. Yes, that’s about 30 – 35 years ago!?
Hoping that there might be a more current credit application, I called to the client to inquire. Unfortunately, what they sent was what they had, and the reason was that since their customers were always such good purchasers and payers over the decades, getting an updated credit application never really seemed to be on their radar. The problem now however is that for many companies, this pandemic has been like a terrible tidal wave appearing out the blue that has negatively impacted even those decades old “good as gold” customers, laying bare the pitfalls in a credit risk management system.?
The one thing about life is that it’s always in motion and the same idea applies to a credit application, especially from the 80’s and 90’s. For example:?
We all understand that the credit application is often the original document by which the creditor and customer iron out credit limits and terms of sales and payments. It’s also were the creditor can get an overview of just how a company may turn into a long-term viable customer. Furthermore, when the credit application is current and properly executed, it can serve as a very important legal document should things unfortunately go south, and the two entities wind up in litigation.?
Going forward
领英推荐
In view of the new economic normal, now is the time to update what is included in your credit applications. This starts with having a document that accomplishes two things:?
Finally, the document should be reviewed by your legal counsel to make sure that it will hold up against legal challenges.?
Although the situation explained above is quite unusual, the moral of the story is that even our best customers could be inundated by extenuating circumstances outside of their control, which could impact their financial viability. When that happens, having all the documentation in order, including an effective and up to date credit application, can’t be emphasized enough.
All Rights Reserved
------------------------------------------
If you're still struggling with past due accounts or are worried about current ones that are showing signs they could default, please?click here?to see our services or give us a call at 1-800-456-3328. There's no reason for past due accounts to become a constant source of concern. With over 40 years experience, let us be?your trusted business partner.
Internal Auditor
4 年The credit application is the foundation of the credit file. Being able to have access to and pulling a credit report for monitoring purposes is essential to good credit decisions. Maintenance of the customer master file and having the proper documentation in this ever changing corporate landscape is important.
Process Improvement Manager | Credit Risk Management | Collections Strategy | Team Building | Policy Development | Best Practices Analyst
4 年Every position I walked into I've found that the credit documents were both outdated and outmoded. Several contain terms which were not legal or enforceable in the jurisdiction that business was being conducted. Business leaders, do yourself a favor and have documents checked and updated regularly. Another good practice, is to require a new application/agreement whenever there is an increase or extension of terms.
Consultant
4 年It’s also worth noting that over the years laws and interpretations change, and this may affect the terms and conditions section of the application and creditors’ rights.
A to Z Business Resources Expert, Coach, Developer of Operational, Financial, Accounting, Bookkeeping, Job Costing, Sales, Service, Commercial Lien Laws, Wholesaler Credit Process developer
4 年I almost always looked at our Credit Application yearly. I would look at older customers first, and determine if their is any ownership change. Then, we would discuss our data with the sales team, and get their input on how to update the new application.
Commercial Credit & Collections Process Analyst
4 年By keeping credit reports up to date, and salesman's ear to the ground, any change in ownership, requires a new ink signed application. Applications should attest to accuracy and solvency before the customer signs it with title, I found this works best. Thanks for this important reminder to keep them up to date.