Steve Harms

Wednesday, April 17, 2013

Debt collection starts with a credit application!

Debt collection really begins when you first sign on your client or customer!  At the beginning of the relationship, you aren't anticipating collection problems, of course, but you do know that a certain percentage of customers go bad and turn into collection problems.

So, why not protect yourself right from the beginning, starting with a credit application (you may not call it that, but you should have a form that new clients/patients/customers fill out).

What should it contain, well consider these items:

Consider accumulating the information in some way so that you have the following data on each of your clients:

1. The correct and full legal name of the applicant, the physical address (not merely a post office box), and the position of the individual who is applying (treasurer, president, etc.). To make sure that the customer clearly specifies the type of business entity, provide check-off boxes for proprietorship is also a good idea.

2. Any trade names the company operates under. For example, if the Brake Shop is a division of Win Management Corporation, the application should require that both names be listed along with the relationship between the two.

3. Names, addresses, and telephone numbers of any authorized purchasers at any branches.

4. Names, addresses, telephone numbers, and social security numbers of partners and officers.

5. Name, address, and telephone number of the bank where the company maintains its accounts.

6. Names, addresses, and telephone numbers of several trade references.

7. Type of product(s) sold.

8. Year the business was formed.

9. A statement similar to the following: “A signature on this document provides permission to pull a credit bureau report on any individual who may be liable under this agreement (such as a personal guarantor, proprietor, general partner, or similar person).”

10. Financial statements.

11. Amount of credit requested.

12. Anticipated monthly purchases.

13. A statement that the customer agrees to pay interest at a specific percentage rate, or the maximum legal rate of interest from the date of the last invoice. The interest charges are to be construed as a time-price differential and therefore not considered interest.

14. A personal guaranty, which should be obtained on all credit applications. Obviously, the signing of a personal guaranty is optional and requires a separate signature from the signature on the credit application itself. The language of the personal guaranty should be somewhat similar to the following:

Should the account become delinquent, the undersigned personally guarantees payment of the account balance to Creditor Company plus the interest and other charges referred to in this application, including reasonable attorney fees. This is a guaranty of payment. The guaranty is personal in nature and the undersigned acknowledges personal liability and consents to having a credit bureau report ordered by the creditor.


Sammy Smith said...

Any tips on how to stop collection calls? I have been getting so many it just becomes so irritating and hard to deal with.

Valerie Kessler said...

Handy advice! We've shared it across our social media channels for our clients' benefit. Thanks, Steve!