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Effective credit applications make a difference

Credit applications are often the lifeblood of a business, enabling them to work with vendors, other companies and customers. These legal contracts outline the terms of payment and better ensure that credit is extended to the appropriate parties. Still, one that goes further to minimize the risk to the business and better enable them to collect debts is indispensable.

Five terms that make a difference

Every application must include details such as the client’s or business’s legal name, address, phone number, FEIN (federal tax ID number), social security number, date of birth, and banking references. Here are five more provisions that businesses can use:

  1. Use language that allows the business to refuse or reduce the applicant’s line of credit, which enables a company to act on red flags like non-payment.
  2. Outline disclaimers and the ability to investigate the applicant’s credit. The business should also state that it can initiate litigation without prior warning.
  3. Establish a predetermined collateral or personal guarantee from the owner to secure the debt.
  4. Employ clearly outlined waivers for reviewing credit, limiting the extension of credit and collecting debts. The releases should state that the signee voluntarily waived their rights and legal protection to secure the credit.
  5. Include information regarding the Equal Credit Opportunity Act and its conditions. Also, state that the applicant can request an explanation for why the business or creditor rejected or reduced the line of credit.

Enforcing these contracts is essential

Contracts are only as strong as the business’s willingness to enforce them. It may be necessary to work with attorneys who understand the laws surrounding collections and how to apply pressure to ensure that the other party honors their agreement.