The effective use of credit applications is a foundational element for success within the produce industry, and pretty much any other business sector. Here are the basics on how to create a credit application, and make it work for you to strengthen your business.
What
(Purpose & Plan)
Credit is a fact of life; getting it is key to obtaining goods and giving it can make or break a company. Credit applications are an essential tool finance managers can use to get to know their customers and, more importantly, forge a mutually beneficial business relationship. It can also help calculate the odds of a new business partner paying its bills on time.
A properly completed credit application is comprised of several critical components, in addition to providing the necessary information to determine if credit is warranted, at what amount, and the risks involved. Applications also give finance managers the necessary permission to contact references, whether bank or trade, and spell out terms, which applicants must acknowledge and accept. When used in conjunction with other sources of information, credit managers can gain valuable insight into a company’s financial health.
“You can’t pay bills with forklifts, buildings, or land; you have to pay them with cash,” comments Charles Brown, director of credit for Hapco Farms in Riverhead, NY. “So liquidity is everything. That’s what we’re always trying to assess.”
Who & When
(Authority & Authorization)
Del Campo Supreme in Nogales, AZ expects everyone who wants to do business with the company to fill out a credit application. “I require a credit application for all our customers who are not set up in our system,” says Cathy Jimenez, credit manager.
Aside from company name and contact information, most credit applications (to view a sample, see page 30) ask for incorporation date and length of time in business, legal entity type (corporation, sole proprietor, partnership, etc.), bank information, and the names of references from multiple trading partners.
All information, however, must be verified, including whether the person submitting the application is authorized to do so. Del Campo Supreme requires all credit applications to be signed by a corporate officer (a chief executive officer is ideal—forms signed by lower level managers or sales staff are generally not accepted).
Brown agrees it’s critical to know if the submitter is authorized to seek credit, and this should either be confirmed in writing by the company or through “a corporate borrowing resolution giving authorization to that person.”
