New Customer Onboarding Basics, From Evaluation and Review, to Credit Application


Empower your entire organization to do their best credit decisions

By David Schmidt and John G. Salek

David Schmidt is a 40+ year business credit and collections executive and the co-author of "Power Collecting: Automation for Efficient Asset Management." He is Managing Director of A2 Resources, an accounts receivable, credit and collections automation consulting firm, and is the sponsor of Your Virtual Credit Manager.

John Salek has spent 40 years+ helping enterprises improve order-to-cash processes, and is an REL and Genpact veteran. He’s the author of “Accounts Receivable Management Best Practices” and is currently President of Revenue Management Associates and a contributor to Your Virtual Credit Manager.   

Don’t waste time with a one-size-fits-all credit evaluation process. No two customers are alike, and the differences are even more pronounced if your customers come from different industries. Even if you serve a single industry, it is important to establish separate procedures to deal with different types of customers, i.e. small, large, risky, etc. Treating all customers the same is inefficient and potentially increases credit and collection costs. 

Customer Evaluation and Review Process 

The amount of time you spend on each prospective customer depends on their potential order volume and importance to your business. These factors will determine:

  • How much credit bureau information you purchase
  • The amount of financial disclosure required of the applicant
  • The scope of your background investigation

Here are some guidelines that will help you have an efficient credit review process for all new accounts:

  • Small Credit Limit Required: In most cases, a completed credit application and a satisfactory commercial credit score will suffice. In fact, asking for advance payment via a credit card is a good alternative to granting open terms with small accounts. In the long run, the credit card fee is a small price to pay to eliminate any later collection issues.
  • Mid-Sized Credit Limit: A standard business credit bureau report and supplier reference checks through a credit application is appropriate here. You are primarily looking to see that they have a history of satisfactorily paying bills that will be similar in size to yours. If not, or it appears their payments are slow, you may want to insist on a personal guarantee, reduce the order size, or ask for a partial payment upfront.
  • Large Credit Limits and Key Accounts: In these cases you should perform a thorough credit investigation highlighted by a financial statement analysis. The key factors are liquidity and debt burden. You should also look at a standard business credit bureau report, and will want to thoroughly check supplier references via a credit application. 

Of course, whether the credit exposure you are evaluating is on the low or high end is relative to your risk tolerance.

Credit Applications and New Customer Onboarding Basics

The first step with every new customer should be to have them fill out a credit application on a digital credit application management system. This allows sellers to learn as much as possible about their customers before making a credit decision. The credit application is the first step of every onboarding.

  • Insist every account complete and sign a credit application. Sample language follows: “The information in this application and in all financial statements submitted in connection herewith is for the purpose of obtaining credit and is represented by the applicant to be true and complete. The applicant authorizes [Seller] to investigate all credit references and any other matters pertaining to its financial responsibility. The undersigned authorizes its bank and trade creditors to submit complete information for the purpose of credit evaluation.”
  • Require every customer to sign a credit agreement that spells out your terms and conditions, including late charges and collection fees in the event of delinquency or default. Late charges provide leverage to encourage payment of past due balances and in the event the account must be placed with an agency or attorney for collection, can be used along with the collection fees to boost the amount owed.
  • Request audited financial statements be submitted with the credit application, though whether you insist on receiving them will be determined by your subsequent credit review. Customers should be advised that failure to provide financials will result in a more restrictive credit limit.
  • Require appropriate Sales Tax Exemption and Resale Certificates
  • All Credit Applications should include the following basic company information:
  • ~Company name, both legal and any DBAs
  • ~Company addresses, headquarters and billing addresses
  • ~Company identifiers: EIN, business license number and state ID
  • ~Type of Entity: Corporation, LLC etc.
  • ~Contact information for Accounts Payable, Purchasing
  • ~Owners names and percentage ownership
  • ~Any other affiliated companies, parent companies and subsidiaries
  • ~Related companies. Do principals have ownership interests in other companies?
  • All Credit Applications should include the following Credit Related Details: 
  • ~Estimated amount of initial order
  • ~Estimated annual purchases
  • ~3-4 trade references, including names and addresses
  • ~Banking relationships and accounts
  • ~Are inventory or receivables secured or otherwise pledged?
  • ~Requested credit limit

Have a creditor’s rights attorney review your credit application form and related materials/agreements.

Credit Tech: Online Credit Applications

Paper and manual credit applications have been replaced by digital credit application management platforms, such as Nectarine Credit. Buyers fully complete an online application, sign via electronic signature and submit the form. Automated systems obtain bank, vendor trade references and credit bureau information as well as verifying business licenses. Credit providers then approve or deny the buyer the terms and assign a credit limit. 

Where to Get a Commercial Credit Report Without Breaking the Bank

Unless you need a significant number of credit reports, buying from Dun & Bradstreet, Experian, or Equifax will be expensive. For smaller firms, getting your reports through an independent reseller could be more cost effective. Your Virtual Credit Manager offers a complimentary service that can connect you with a reseller that is a good fit for your needs and your pocket book.