Expert Offers 15 Red Flags for Reviewing Credit Applications

- Credit Today, March 2005

 

 

 

According to collection and sales trainer Kay Laffoon, many companies use credit applications for new customers but do not take the time to carefully inspect the information.  Says Laffoon: “A well-written credit application is a signed contract between the buyer and the seller, which will benefit the seller. But a poorly written credit application will actually offer more benefit to the buyer.”

 

Knowing how to spot problems on credit applications is an important skill, and is an investment that will save both time and money down the road.

 

Here are Laffoon’s top 15 red flags to be alert for when reviewing credit apps.  Of course, most of these, by themselves, don’t mean as much, but combined, they tend to raise the risk:

 

ü     The trade references all indicated that the account was opened less than a year ago

ü     The applicant refuses to provide financial statements

ü     The order received was unsolicited

ü     Calls to the main number are always answered by voice mail

ü     The applicant was founded less than a year ago

ü     The Bank reports the company has a non-borrowing status

ü     All trade references are in the same geographic location

ü     There has been a change in ownership recently

ü     They have been in business for many years and only recently incorporated

ü     Trade references show a poor recent pay history or they owe the exact amount as their credit limit

ü     The company sows tax liens or lawsuits

ü     The new customer insists on quick delivery before the credit app can be reviewed

ü     The new customer is overly friendly and asking for favors regarding credit review

ü     You cannot find any website information or Secretary of State information on the company

ü     You can’t find a physical building or site information; only phone numbers

ü     You receive a partially filled out credit application with blanks or no phone numbers on references

 

 

And here are some further recommendations from Laffoon:

 

·        Make sure the signer is an officer or owner of the company, not an office employee

·        Always require a physical address and check the location

·        When speaking with trade reference, ask about the number of times the customer has purchased from them

·        If you are using personal guarantees, make sure the person signing is an officer of the company and does not use his/her title after his/her signature.