Customers who do not pay are a problem for many business owners, especially if you are offering them credit. You can minimise problems with non-paying customers and make it easier to chase outstanding payments by getting your credit application right. A credit application form collects information from your customers to help you to assess their suitability for a credit arrangement.

This article sets out the essential terms your credit application needs. Ensuring that you have an effective credit application will improve your cash flow and save time spent chasing debts.

Full Business Details

Your credit application should request full details of the business or individual in question. Credit applications often fail to ask for this, and businesses are left unsure whether they are dealing with a:

  • sole trader;
  • company;
  • association; or
  • trust.

It is impossible to chase unpaid debts if you do not get this right. Make sure companies provide their:

  • ACN;
  • registered business name;
  • ABN, if they have one;
  • directors’ names; and
  • registered address.

If the customer is acting on behalf of a trust, make sure they include the name and contact details for the trustee and whether it is an individual or company.

Contact Details

A name and mobile phone number are not enough when it comes to contact details for new customers. Your credit application should request details such as:

  • the full names of all directors and contact persons;
  • mobile phone numbers;
  • landline numbers;
  • email addresses; and
  • business addresses.

Make sure that the business address you receive is a street address, as you cannot serve court documents on a PO box.

Ensure that you check these details and insist on the customer providing all of them. If you fail to do this, you may struggle with chasing debts.

Financial Details

Before you accept a new customer for credit, you should do your homework on their ability to pay you. In the credit application, you should request:

  • bank details including account name, BSB and bank location;
  • accountant’s details;
  • permission to do credit checks; and
  • trade references from at least three other suppliers, including full business name, ABN, mobile number and email address.

Payment Terms

The credit application form should set out your payment terms in clear, direct language to avoid disputes about how the terms operate. Most importantly, be clear about when you require payment. Usually, this is within 7, 14, 21 or 28 days of providing goods or services. Include which types of payment are allowed and which are not. Standard options usually include:

  • cash;
  • cheque;
  • credit or debit cards;
  • BPAY; or
  • online payments.

If you choose to exclude any of these methods, make that clear. Your business terms should also permit you to amend your pricing structure and payment terms, but any changes would apply only to goods or services that you provide after the date of change.

Directors’ Guarantees

When dealing with a company, your credit application should require individual directors to provide a guarantee stating that they will pay any debts the company is unable to pay. If the company goes into liquidation, you can chase the directors for payment of any outstanding debts. Make sure the credit application obtains all their contact details, including mobile number, email and street address.

Personal Property and Securities Register (PPSR)

Your credit application form should include a clause that lets you register an interest in the goods you are selling on the Personal Property and Securities Register. If the customer goes broke, this will ensure that payment of your debt takes priority over payments to other creditors. The types of property that you can register on the PPSR include:

  • goods;
  • plants and equipment;
  • vehicles, including boats and planes;
  • crops; and
  • cattle and other livestock.

Key Takeaways

Offering customers credit can be good for business, but it can leave your business exposed if customers fail to pay. Getting your credit application right will allow you to:

  • perform credit checks on new customers;
  • secure your rights relating to any goods provided; and
  • chase any debts if the customer does not pay.

If you have any questions about business contracts and credit applications or need assistance with debt recovery, please call LegalVision on 1300 544 755 or fill out the form on this page.

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