We thought it would make sense to compile a Top 10 list of reasons to have your customers fill out a credit application.
As it turns out, there are more than 10 good reasons for this. Our readers kept giving us additional reasons for customer credit applications.
We think you’ll quickly see that requiring credit applications is invaluable to the health of your company. Accurate and up-to date customer information is ultimately what matters when deciding creditworthiness, and a credit application is the first step.
Let’s get started. Here is our list:
- A Credit Application is the First Step to Learning About Your Customer. According to the National Association of Credit Management’s Principles of Business Credit a credit application helps sellers learn as much as possible about their customers before making a decision to extend credit. A credit application should be the first step in the onboarding process of a new customer.
- Window Into Customer's Ability to Meet Credit Obligations. A credit application allows the seller to make informed decisions about a customer’s ability to meet credit obligations. At the very least, the seller will get some financial background on a prospective customer.
- Limit Seller’s Risk. A credit application helps prevent delinquent payments and financial loss. An accurate and up-to-date credit application is one of the best ways to minimize risk. The application also allows the company to better implement their credit policy.
- Prevent Bad Debt Write-Offs. Simply put, clicking a button and requesting a credit application could save you thousands of dollars in bad debt write-offs.
- Creditworthiness Changes. Companies change. Businesses change. The economy changes. Events in the lifecycle of any business can alter a company’s creditworthiness. Customer trade references and banking references, as well as management and ownership, should be checked and verified at least every six months.
- Monitor Changes. As mentioned, creditworthiness changes. It pays to do periodic reviews, even on existing customers. So having customers fill out a credit application one time is not enough. The best way to monitor for changes is to use a platform like Nectarine Credit. With just a click of a button, you can receive updates to your customers’ credit applications automatically. Or have them fill out a new application.
- Legally Binding Contract. The agreed upon terms, conditions and the guarantees of a credit application are a legally binding contract and will make a significant difference in the collections process and can be relied on should litigation take place if a customer cannot pay.
- Improved Cash Flow for Your Customers. You might be wondering how improving your customers’ cash flow helps you if your customers are the ones who are getting the better cash flow. The truth is, happy customers are more likely to come back, order again and have a longer and healthier business relationship with you. Many businesses are not able to receive the bank funding they need and that prevents them from growing their business. You might be able to help. If they thrive, you will thrive.
- Lifetime Reference File. A good credit application can be referred back to again and again beyond the typical lifetime of a paper application-- sometimes years or even decades later. In addition to the obvious data points -- like company name, address, phone number -- a good credit application will have other invaluable data. Other information that could prove useful includes: bank balances, directors’ names and percentage ownership, vendor contact information.
- A Customer Requests a Higher Credit Limit. You may have a customer who pays within 30 days and only has a small credit limit. But what if that customer’s business starts to pick up and they request a higher credit limit? You can expect that their sales might increase in size and speed. That would be a good opportunity to check their credit and have them fill out an application.
- No More Fax Machines. Hello, people! We are in the 21st Century. We really shouldn’t be using fax machines anymore. Any credit application you receive that asks for a fax number for a vendor or a bank, should be thrown out. Email solved this problem years ago. And so did Nectarine Credit.
Simply put, the difference between having your customers fill out a credit application or not, could ultimately change the trajectory of your business. Getting your company set up on Nectarine Credit takes only a few minutes. Sending out applications and managing the credit approval process also only takes minutes. Did we mention that our platform is free to get started?
Did we miss any reasons? If so, please feel free to send us a quick note.