When was the last time you reviewed your credit application forms?
Credit application forms are crucial to any business, new or old, to ensure you aren’t left with bad debts that you can’t recover. While they might seem like a mundane part of business processes, SMEs will quickly learn how fast things can go wrong if this step is overlooked.
Your credit application form should capture all the important information about a new customer, such as their name, address and contact information, to help you recover unpaid debts if they forgo payment. It should also include your business’ trading terms that dictate your relationship with your clients and their obligations for repaying debts. Proper trading terms establish a concrete foundation for your business and clearly define your legal rights and relationship with customers from the very beginning of the relationship.
A good credit application form will collect extensive and relevant information that will better help you evaluate a customer’s financial situation and the appropriateness to granting credit.
Whilst you might feel as though you are turning business away by using such stringent trading terms and carefully evaluating each application, adhering to enforceable trading terms will ultimately help your business survive in the long term. Don’t be afraid by this, remember that customers who don’t pay promptly or are likely to not pay at all, are not worth having. Every successful large business you deal with has trading terms in place, think about every time you download an app or use a digital product.
By reducing you bad debts, you can expect a more accurate picture of cashflow, meaning you can better plan the cashflow coming in and out, making sure your business can survive the highs and lows of small-business ownership – because as we know, cash is king.
Credit application forms should be specific to your industry, for example a childcare centre’s form would differ from a vet’s or dentist’s form. The most important thing all businesses need to include though is the period in which payment is due – for example, 14 days from the date of invoice. This means payment beyond that date constitutes a default. It also means the customer would be liable for interest, account keeping fees and all debt collection costs should they default.
By including your terms on your credit application form, it means when customers sign the form they are accepting your terms and these are legally binding. For slippery creditors this will mean there is less wriggle room to contest the payment or disagree with terms resulting in fewer disputes over payment. If a customer fails to make a payment, the information collected in the credit application will assist debt recovery agency should you refer the bad debt to them. It makes tracing the customer easier, meaning bad debts are more likely to be recovered.
SMEs that use proper terms invariably operate good collection systems, receive fewer bad debts and, when they do, the recovery rate is much higher. The use of a well-drafted credit application form will ultimately provide a better result and will give you peace of mind that your collection process and cash flow will be protected.
While it seems like such a minor part of running your business, one simple form can make all the difference in making sure you get paid and ensuring you don’t extend credit to those who are unlikely to pay.
Roger Mendelson, CEO, Prushka Fast Debt Recovery