The Customer Credit Application--Your Most Important Form

Pretty brash statement...that the credit app is your most important form.  Most people would say it is a customer order, or a customer invoice, or a customer payment!  After all, there is nothing better than money in the bank.  But, there is nothing worse than no money in the bank.

Orders don't count.  Invoices don't matter--if you are not going to get paid what is due you.  In fact, if you don't get paid, that customer order actually hurts you.  You would have been better off without it!

Benny Bigshot walks in to your office and gives you an order that you have been wishing for.  You have quoted this order three times, each successively lower, and now you have it.  Benny asks how soon you can get started.  You reply, "Right Away, Benny".  He's happy and leaves.

Do you really know Benny?  Of course you do...he has a nice office in the center of town, has put up a couple of buildings and they always seem rented.  You took this job low to finally get into Benny's speed dial list, and you hope to get more work from him.  Benny has tried three different glaziers on his last three jobs, and tells you that you could be the one to get his future work.

More than likely, Benny's payment patterns will force you to close your doors and give up everything you have worked for.

DO NOT TRUST ANY NEW ACCOUNT UNTIL YOU VERIFY THEIR CREDIT HISTORY WITH OTHER SOURCES.  If they are a Fortune 500 company, OK, everyone else gets checked.

Your credit application should include:

• Complete name, address, phone, fax, email and web site info
• Complete bank name, branch address, checking acct number, local officer they deal with at the bank, and a short form that gives the bank authorization to release credit info.  Most banks will not release info without this.
• Four vendors they have dealt with, in the last year, and in amounts similar to what you are expecting to grant credit for.  I remember one glass shop that applied to me for credit, and gave a hardware store where they spent $40 a year as a credit reference, but wouldn't give me a glass or metal vendor.  This is a sure sign of hiding relevant information.
• Ask for a personal guarantee on the credit line.  Many people will not do this, but you can't get hurt by asking. 

Now, you have this information.  Do something with it.  Call Benny's bank and ask how many NSF checks he had last year.  Ask what is his approximate balance over the year.  Check with the vendors listed.  Most people will only give you vendors they have a good record with, but even so, you will get insight into Benny's payment habits.  Look at Benny's web site.  Has it been updated recently?  Google Benny and you will can see a history of articles about disputes or problems. 

There is a ton of information about everyone on the web.  Use this tool wisely to help you grant credit. 

The single most important credit granting tool is:  Your gut.  If you think giving Benny credit will keep you up at night until you get paid, then don't do it.  Ask for a significant deposit.  If you gut says don't do it, but you know you could use the business, follow your instincts.  A glass business with low volume is better than a glass business with a high accounts receivable and no cash.