Glossary
Credit Application
A commercial credit application is the form a business customer completes to request trade credit, providing company details and usually agreeing to the seller's terms and conditions of sale.
A credit application does two jobs. First, it gathers information the seller uses to decide whether to extend credit and how much: the customer's exact legal name, entity type, state of formation, address, owners or officers, bank and trade references, and sometimes a tax identification number. Second, when signed, it often becomes part of the contract between the parties, setting out payment terms and what happens if the customer does not pay.
From a collections point of view, the terms in the credit application can matter more than anything that happens later. Useful provisions often include the payment terms, a late payment interest rate, a promise to pay reasonable attorney fees and collection costs, a choice of governing law and venue, a personal guarantee section, and consent to obtain credit reports. Not every clause is enforceable in every state, and some provisions, like fee shifting or forum selection, are applied differently depending on local law and the facts.
Accurate identity information is just as important. Consider a fictional fastener distributor, Copperline Industrial, that receives an application signed for 'Delta Builders.' The state business registry shows the legal entity is 'Delta Builders Group, LLC,' formed in another state. Copperline updates its records to match. If it later has to sue, it can name the correct entity and serve the right registered agent, rather than discovering the mismatch after judgment.
A strong credit application matters to a creditor because it is cheap to get at the start of a relationship and very hard to get after a customer falls behind. Creditors should review their forms periodically with counsel, keep signed copies on file, and refresh applications when a customer changes ownership, entity name, or credit limit.
Example
Copperline Industrial checks a new customer's application against the state registry and corrects the name to Delta Builders Group, LLC before approving net 30 terms with a signed guarantee.