A few years back I wrote an article, Avoiding the Pitfalls of an Outdated Credit Application, and one of the things I mentioned was the importance of maintaining updated information on your customer’s credit application. The impetus behind that article had to do with receiving a claim that included a credit application from over twenty years ago. As you can imagine, the previous generation was no longer at the company and almost all the information was obsolete. This included:

  • The customer’s current location, contact email addresses, and telephone/cell numbers
  • The individuals in charge of purchasing and accounts payables
  • Trade and bank references
  • Sales and profit information 
  • Credit card numbers and guarantor information

I’m always pleased when credit applications contain fairly current information since it helps us to help our clients with their collection needs. But one item I would like to discuss has to do with credit applications being filled out by hand. 

Before the age of the internet and sophisticated online application portals, there was really no choice but to let a new customer or client manually fill out a credit application. Depending upon the level of detail required, it was a laborious endeavor and sometimes, not always legible. In addition, the information had to be manually transferred to other files and/or stand-alone computer systems. 

These days, however, there really is no excuse for not having an online credit application portal for your new customers, as well as for existing customers to update their credit files. Much of the information needs to be tied into the credit bureaus and should automatically generate letters or emails to references. Here’s the way the data should flow when a new customer fills out an online credit application.

1) D&B numbers – The application should require that the customer input their D&B number. Every company should have a D&B number since D&B is fairly good about taking every registered company in the US, as well as in many industrialized nations, and assigning a D&B number. 

When this field is linked to D&B (you will have to contact Dun & Bradstreet on this), a credit report can be generated and a great deal of legal, financial, and credit data can be populated right into your credit file. One piece of important data that is on almost company’s credit report is the Paydex score, which indicates whether a given business makes payments to its respective suppliers and creditors either “as agreed” or “better than agreed.” The Paydex Score ranges from 0 to 100 and a score of 80 or higher is considered healthy for a company – that is, a company is paying its suppliers and vendors on time and before the scheduled payment due date. It is also important to note that payments received after they are due, or in other words, late, will negatively affect the organization’s Paydex score. Today, most credit grantors are looking for a score of 75 and higher. If say your new customer has a Paydex score of 65, then right then and there, granting credit would most likely be on the “nay” side. 

And even if you don’t use D&B, many of the other credit reporting bureaus that rely on the D&B number to provide their credit information, can be linked using this number as well. 

2) Bank and trade references – When the online application contains fields that must be filled out, which includes a field for a reference’s email address, at a minimum a standard request to verify sales and payment information can be automatically generated. In return, what would be really nice is if the reference can send the information back through a secure portal. 

3) Credit card numbers – Depending on the card issuer, verification of the credit card can be made automatically with a link to the credit card company. Just having the credit card number without actually verifying if it’s in good form, doesn’t really help. In fact, periodic credit card verification is one of those credit activities that should be performed, and not when the customer becomes delinquent. Usually by then the card may not be of any use. 

4) Analysis – Just as having an initial credit application is the building block for further legal and contractual documentation, an online credit application which contains sales, profits and other financial data that can be easily picked up and integrated into a wide range of financial and credit analyses, can support future credit decisions. 

The upshot to having an online credit application is to facilitate the application process and tie into the other resources that can help you verify the initial and ongoing credit worthiness of every customer. At the same time, as with any online system where one has to input data, working with all related IT professionals and legal counsel to provide tight security, compliance, and confidentiality is absolutely imperative. 

Your questions and comments are most welcome (nseiverd@cmiweb.com).

Nancy Seiverd, President, CMI Credit Mediators, Inc.

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