REDUCE BAD DEBT USING CREDIT APPLICATION FORMS
A good way to reduce bad debts is having great systems in place at the beginning. One of the best tools you can have is a credit application form. Basically, this is a request, usually in writing, for an extension of credit. You can present one to your prospective customers if they are not paying upfront.
A valid credit application form will normally have the following:
• Type of credit requested
• Amount of credit extended
• Cost of the credit (i.e. if you charge interest or a recovery fee on late payments)
• Security (if you intend to ask or obtain security from your client)
• Clear outline of customer obligations
If you are not getting payment upfront from your clients, we strongly suggest getting each one of them to fill in a credit application form.
Most businesses who extend credit to their customers want to know who they are dealing with and the use of credit applications continues to be a valuable tool in preventing debts turning bad.
This is a great way for you to get to know your customer and it will send them a strong message that you are serious about doing business with them and also serious about getting paid on time.
The information gathered on the credit application form also comes in handy in case your customer does fall into arrears. It has valuable contact information that your debt collector can use to locate the customer and recover the funds.
This is also a good time to ask for trade references from your customer to reduce bad debt.
Overall, it is a good way to sort out the customers you really want to do business with. Any resistance on their part to complete an application form or provide references should be seen as a warning sign. If they do query it, you can explain to them that it is simply company policy and remind them that most credit providers such as banks and credit unions, require one to be filled out and that you are no different.
See also How to collect debts
These applications also allow you to clearly spell out your terms and conditions, should the credit supply be abused or remain unpaid. When setting out your terms early, you may be able to add any costs or fees associated with recovery action of your unpaid accounts. This is also a great opportunity to partner with a collections expert, and give your clients plenty of notice that this is a distinct possibility should accounts go unpaid.
If you require any legal assistance or would like further information regarding this topic, please feel free to contact our team for advice on 1300 799 820, or email them at email@example.com.
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