Business Credit Application Template

Understanding a Credit Application

Get a well formatted business credit application template that authorizes a company to investigate a customer’s creditworthiness and establish credit terms between the company and its customers.

What is a Credit Application?

A credit application is a document submitted by an individual or business(client) to seek a line of credit or asking for an extension of credit from a business, firm or financial institution. If you, as a business owner, want to know more about the financial situation of your client before extending credit, then this document will allow you to do so. You will be able to investigate the credit history of your client, along with their employment status and their capacity to pay back the amount they are asking you to lend.

Well-drafted credit applications, when signed by your client, whether it is an individual or another business, will help you verify the client's ability to repay you. Therefore, it is incredibly important that you rely on a professionally prepared credit application template, in order to ensure the collectability of your lending.

Our credit application template enables you to make sure all-important grounds are covered within the credit application. If you are a business owner, a credit application will not only help you protect your loan but will also elevate the possibility of repayment from the client. It is one of the most successful tools when it comes to ensuring the recovery of dues from clients.

If you are a company working in the B2B space, then credit applications can come in handy as well. It will help you mitigate the credit risk as you extend a line of credit to customers, to build a long-term relationship or rapport with them. A credit application is a contract between you and your client. A well-drafted credit application template will favour the company/lender. On the other hand, a badly made application will favour the client/borrower. Hence, it is important that your company must accommodate all available safeguards and guarantees to alleviate the risk of a client failing to pay you. . Even though you can secure a credit application from your client, this does not guarantee repayment. A credit application document will help you make a more informed decision about whether you should extend credit to a particular business or individual.

What Purpose Does a Credit Application Serve?

Any well-drafted credit application can serve three primary purposes:

• Determining whether the client/customer is creditworthy or not.
• Setting-up terms and conditions of the credit lending between you and the client.
• Safeguarding you against any future client defaults, if any.

By following a professional pro forma like the Business-in-a-Box credit application template, you will be able to obtain important information about the financial standing of the client in question. This document also works as an agreement between your company and the client, documenting all the terms and conditions regarding the credit application and receipt. The credit application is written in a manner that safeguards your interest.

What does a credit application include?

The following are some of the important aspects that are necessary to include and are therefore part of a well-drafted credit application template.

1. Detailed personal and credit information about the client.

You will require a few details to evaluate the creditworthiness of the client. You will also need some information if the client declares delinquency. Basic information includes the following:

• Name
• Address
• The phone number of the company and its parent companies (if any)
• References
• Bank details

Thorough verification of the basic information will help you avoid getting in business with a fraudulent company or organisation.

2. Establishing Terms and Conditions for Credit and Collection.

The next set of details that are included in a credit application are the terms and conditions that would be established and govern the lending and its remittance (Credit and Collection). Having a written agreement that clearly states how the money would be repaid and by when can make a huge difference in securing your interests as the lender.

The following are some of the most essential terms that you must include in a credit application. Our professionally crafted credit application template includes:

• The agreement should legally bind the client.
  The agreement should clarify that it legally binds the client to the terms and conditions of the agreement.
  If you think that including the terms and conditions into the application is perhaps too confusing and it would be better to make a separate agreement stating the terms and conditions of the credit lending, then you can do that. Just prepare the application and attach a separate agreement that lays down the terms and conditions of repayment and get both filled out and signed by the client.
• The agreement must include an affidavit that the client must sign.
  An affidavit template states that the information provided by the applicant is accurate and true is very important to obtain an affidavit from the client that states that the information provided in the credit application is true and accurate. If the information provided by the client is proven false, inaccurate, incomplete, or wilfully misleading, an affidavit would prove vital in holding the client legally responsible for such information.
• The agreement must grant you the authority to gather information.
  This is probably the most important part of any credit application. Through this document, the client permits you to investigate their financial circumstances. It is not possible for any individual or firm to run a credit check without the express consent of the person/firm being checked. Therefore, the credit application is paramount for you to gather important information about the client's credit history and his current financial standing.
• The agreement must also provide you with the sole discretion.
  The credit application must also state clearly that just because you are asking the client to fill out this credit application form, does not imply that you will have to necessarily lend money or otherwise enter into any kind of deal with the client. By granting you sole discretion, the agreement will protect your right to not enter any business deal that you do not want to pursue.
• The agreement will specify that the applicant/client will owe you, the lender/company for any goods and services.
  This one is self-explanatory. Basically, the applicant filling the credit application will owe the company or individual who is issuing the credit application form and asking for this set of information.
• The agreement will override all the other contracts.
  There are several different documents that are usually negotiated between a company and its clients. This clause will highlight that this agreement will supersede all other terms and conditions mentioned in different documents such as purchase orders, emails, contacts, etc.

3. Protection for you in the event of defaults.

From the point of view of safeguarding yourself against default or delinquency on part of the client, you must include the following terms in your credit application. You can use our credit application template for guidance.

• Personal guarantee
  Even though personal guarantee doesn't hold much value, it does tell you a lot about the client if they refuse to provide you with a personal guarantee that states they will repay the amount being lent to them in full. By agreeing to provide a personal guarantee, a client (individual or company) is showing their willingness and intent to pay back the amount they owe to you. Therefore, despite it not being a fail-safe or an actual guarantee against default, it is still prudent for you to obtain a personal guarantee from the client.
• Interest
  This clause will provide that the client is legally liable to provide you interest against any past due invoices.
• Acceleration
  This clause will specify that in the event of an invoice being overdue for payment, you will have the right to make all the invoices payable immediately. What it implies is that if there is a single lapse or default of payment instalment on the part of the client, they will become liable to pay you all of the remaining contracted amounts immediately, regardless of the actual date at which they became due according to the agreement. It is a punitive clause, that aims to incentivise the client to repay all the dues in a timely manner.
• Collection costs, lawyer’s fees, and other legal expenses
  This clause will make the client liable to pay any legal expenses including lawyer’s fees and collection costs that arose from their non-payment.

Credit Application Template Sample

The following is a short introduction to our professionally crafted credit application template sample. You can use it to create a well-drawn credit application for your clients.

1. Complete details of the company and its owner

The credit application must ask the client to submit complete details about itself(business/individual).

The credit application must clearly mention what the business is among the following:

• Sole trader
• Company
• Association
• Trust

After clearly identifying who the party is, the credit application must also provide you with the following details:

• Registered business name
• Directors’ names
• registered address

2. Complete contact details

The credit application must include the following contact information of the client:

• The complete names of all the board of directors and contact persons
• Mobile/phone numbers
• Landline numbers
• Email addresses
• Current addresses where business operations are taking place

3. Complete financial and accounting information

The credit application must include the following financial information:

• Complete bank details including account name and location of the bank
• Auditor’s information
• Checking credit history and verification of the current outstanding debt, if any
• Reliable references from within the trade.

4. Terms of repayment

The credit application must clarify the terms of payment, including the mode/medium(s) of payment.

Usually, the modes of payment that are accepted are as under:

• Cash
• Cheque
• Credit or debit cards
• Online payments.

5. Guarantee by directors of the company

If you are dealing with a firm or company, it is preferable to include a clause that makes the directors of the company liable for paying the debts, in the event the company fails to. This will help you in the case that the company goes bankrupt or gets liquidated or dissolved.

Well-drafted credit application template not only serves to protect the interests of you and your company but also helps the client to easily figure out the when and how of the repayment process. Clearly laid out terms leave no room for misinterpretation or confusion, which is great for both parties. Not every client will readily agree with each clause of the credit application. However, you can easily remove or add certain parts of the agreement and alter it according to your current negotiation with a client.

To make changes so easily, it is necessary for your credit application to be extremely clear and precise. This is where our array of credit application templates come in. Sign up to get access to your credit application template and browse through our collection of over 2,000 business and legal documents.