Can you locate your credit applications?

April 21, 2021Cash Flow

Does this sound like you?

  • You give your customers payment terms or trade credit.
  • Part of the process is for a buyer to complete a credit application.
  • Your credit application is in PDF or paper form.
  • You send it off to new buyers in the hope that it will come back quickly.
  • Same day completion is rare and receiving it fully completed on the first go is even rarer..
  • If info is missed, you think to yourself “Is it really that important?”.
  • Sometimes you compromise or give into a buyers suggestion that they won’t complete certain areas of the application.
  • You ask some customers to fill in a paper-based Credit Card Authorisation or Direct Debit request.
  • Buyers send it back and you print it out, have a quick look and file it away in a box or filing cabinet.

So why do we get a credit application signed by a buyer?

The same reason any contract is entered into. To have the two parties agree to the way they are to conduct business, including when to pay and what happens if buyers don’t pay.

So let’s imagine a buyer owes you 20 grand and doesn’t pay. They might be having a tough time, waiting on their own customers to pay or cheating on you with someone else who supplies the same thing you do. Your options are to find a debt collector or go to court. You will need to articulate and evidence that:

  • You supplied some goods that were accepted and not challenged.
  • You gave ample reminders and reasonable warning including a Final Notice.
  • You have a signed contract clearly stipulating what was agreed and showing that the agreement was entered into by an authorised representative of the business.

We surveyed 20 wholesalers recently, knowing that COVID had caused some buyer defaults. We asked them a bunch of questions about their credit applications and received troubling responses to two key questions.

“What is the average time it takes from inquiry to receiving a fully completed, signed credit application?”

Days or weeks was the most common answer with hours coming up once and minutes not even considered; and

“What % of your credit customers can you locate and present a fully completed, signed and binding credit application for?”

A simple audit of credit agreements returned a few key takeaways, including:

  • Terms were updated without telling customers;
  • The majority of agreements were missing key details;
  • ABNs were present in only 20% of cases;
  • Businesses had changed hands in 1 out of every 9 cases;
  • 1 out of every 6 was missing a signature in the right place.

To get a good indication of where your credit agreements are at, just audit a small sample and use the markers listed above. If you have room for improvement shape and need some advice, book a time in and we would be happy to give you some free pointers.