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5 tips for creating a well-written credit application

On Behalf of | Oct 28, 2021 | Commercial Debt Collection

For many businesses, extending credit to customers is a necessary business model. Unfortunately, giving credit also comes with risks of non-payment. Credit can become a liability for your business when offered to the wrong individual or company.

At Law Offices of Alan M. Cohen & Associates LLC, we know how important the credit application process can be. We have been helping businesses of all types review and manage credit and debt collection since 1994. We have found that the following five tips can assist you in preparing a strong credit application that helps you make smart decisions and will also allow you to collect on the debt in the case of default.

Give yourself control

Your application should include language that allows you to deny credit, reduce credit or refuse to extend further credit, depending on the applicant’s situation. If the applicant suffers a financial setback, you want to be able to stop any further extension of money.

Include legal disclaimers and guarantees

Your application should provide disclaimer language that allows you to investigate credit, as well as opting for litigation in the future, without prior notice. In addition, you should include a personal guarantee for the applicant, which would assist you in collection in case of default.

Acknowledge the Equal Credit Opportunity Act (ECOA)

The ECOA prohibits discrimination on the basis of protected classes of applicants, including:

  • National origin
  • Religion
  • Race or color
  • Age (as long as an adult with capacity to enter a contract)
  • Sex
  • Marital status
  • Receipt of income from public assistance
  • Good faith exercise of rights under the Consumer Credit Protection Act

Your application should acknowledge this law and the fact that you understand and follow its requirements. This includes providing an applicant with the reason for credit denial, upon their request.

Add waiver clauses

Similar to the legal disclaimers, a waiver can ease your path for reviewing credit, limiting the extension of credit and collecting on unpaid debt. Simply stated, a waiver clause voluntarily gives up the applicant’s legal right or privilege. A waiver must be clearly written.

Secure your debt

If your applicant has less-than-perfect credit, you may consider requesting that they offer an asset or property as collateral to secure their debt. This will allow you a method of recovery should they fail to pay their debt. You may offer unsecured credit to applicants with a strong financial history.

Allow our skilled attorneys to help you

Preparing a credit application is no small feat, and simply using a form found on the internet does not allow you to include all the necessary items listed above. The experienced commercial collections attorneys at Law Offices of Alan M. Cohen & Associates LLC know how to tailor your application form to your business and your needs. To schedule an appointment to discuss your credit and collection issues, call us at 508-763-6604 or send us an email today.