Effective credit applications make it easier to collect

Effective credit applications make it easier to collect

On Behalf of | Oct 2, 2022 | Collections, Consumer Debt Collection

Credit applications are a vital tool for conducting business. These legal devices enable companies to extend credit to the appropriate customers. Still, a more substantial and detailed credit application minimizes the risk and allows for collection if the customer defaults.

These 5 provisions can make a difference

Every credit application should include details, including but not limited to, the client, business or person’s legal name, address, telephone number, social security number or FEIN, date of birth, banking references, etc. Companies who wish to avoid the need or strengthen their claim can add the following provisions:

  1. Include language that entitles you to deny, refuse or reduce the applicant’s credit. This permits the creditor to stop additional lending if the client encounters financial setbacks.
  2. Use language about disclaimers and a thorough investigation of the applicant’s credit. There should also be language about future litigation without prior notice and a personal guarantee from the applicant.
  3. Include information about the Equal Credit Opportunity Act and its requirements. Also, indicate the creditor will provide grounds for credit denial if the applicant requests it.
  4. Use clearly stated waivers for reviewing credit, collecting unpaid debts and limiting the extension of credit. The releases should note that applicants voluntarily give up their legal protections if certain situations arise.
  5. While many applicants with good credit do not need to provide collateral, it may be wise to request predetermined collateral to secure the debt.

Skilled legal support may still be necessary

Even with these provisions, businesses may still need to take legal action to collect money owed to them. An attorney can help draft effective agreements and then enforce the conditions if the applicant claims they cannot pay their bill.