Advice & Tips: The benefits of using credit application forms

As tempting as it is to get straight down to business with a brand new client, asking them to complete a credit application form can help you ascertain if they are a credit worthy organisation to do business with. This helps reduce risk considerably before you agree to giving them 30 days credit.

In any walk of life, if you lend money to someone you would usually want to establish upfront if, when and how it will be repaid. For instance, if an acquaintance asks to borrow £5, but you know they have a track record of not paying people back, you may feel reluctant to lend this money. We’ve all been there and know the minor dilemma this can cause – you want to lend them the money but you also want to know you will get it back.

Therefore, if this matters to us in our personal lives then it should matter just as much, and even more, in our business lives. Before giving away goods or services as a business owner/manager you should have a natural impulse to want to know there are no issues that may affect prompt payment, yet it is surprising how often a credit application form is skipped over. The larger the credit your business provides, the more important it becomes to incorporate this as a regular credit control measure in order to avoid future late payment problems arising.

Key details to ask for are:

Trade references from their regular suppliers to find out what they are like to do business with. Ideally these references should be randomly chosen by you rather than the would-be-customer, to avoid them putting forward a loyal customer that does not necessarily give a true and balanced indication of their business creditability.

Without fail, bank references to find out more about the financial state of the company should also be asked for to ascertain if they have the capability to pay for the good/services you provide.

And it may sound obvious, but establishing who actually owns and runs the business (these could be different people) is also vital, particularly when credit control issues arise and you need to speak to someone in particular to resolve.

Establishing these financial capabilities of a prospective customer is simple best practice that is worth the effort to unearth if it means avoiding any late payment pitfalls.

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