Internal Policies for Credit Applications

Owen Hodge Lawyers specialise in debt recovery for Sydney-based businesses. We understand the importance of ensuring that when a person wishes to do business with your organisation on a credit basis it is important to make sure that you have the proper checks in place to protect your business as best as possible. When dealing with new credit customers you may not be fully aware of their history, their trading ability and the ability of that organisation to repay the debts they owe to you.  Consider the following issues to assess whether you have the proper checks with respect to your credit customers:

  • A credit account application form;
  • A guarantee from a director;
  • Web and Google searches of the business;
  • A bankruptcy search;
  • A company search.

Addressing these as follows:

1.  A credit account application:

This document is critical for you to be able to business on credit basis.  Not only do credit account applications allow you to place yourself in a better position whenever there is a dispute regarding payment but it also enables you to obtain guarantees and obtain security over a business’ and person’s assets when you are dealing with them on a daily basis.  In particular you credit application should include things such as:

  • The payment and account terms;
  • Delivery terms;
  • A period of liability for which claims are to be notified;
  • The return of stock;
  • Property at risk otherwise known as Romalpa clause – that is, goods provided remain yours until the date they are paid for.
  • Guarantees, from directors of companies;
  • Interest clause at a rate not so onerous as to be unenforceable by the Court if necessary.

Upon receiving a credit account application form which has been completed by a potential customer you should also require that, that person or business provides you with details such as their web address, their drivers license, other suitable identification and trade references if possible.

Once you have those details it is important that you internal processing the account actually takes the time to ring the persons who have been listed as trade reference to ensure that they are legitimate people.

2. Director’s guarantee

Where the customer seeking credit is a company you should obtain a personal guarantee from a director. It is imperative that the guarantee is signed on the credit application separately to the agreement to obtain credit and trade in accordance with the terms and conditions.

3. Internet searches:

  • Often the credit applicant will provide you with a website. This can be a very useful tool to determine whether the information they have provided you is actually correct. A website is an organisation’s advertisement to the world of the goods and services that they provide and therefore things such as telephone numbers, addresses, and emails are always the correct information provided.
  • A simple Google search or website search of that organisation may reveal that the person with whom you are to do business does actually exist and they are not providing you with obviously false information. If in doubt call any phone number on the site.
  • Further, if the business that you are attempting to do business with is it mentioned no where in the web then it may be an indication that that business may not be legitimate. Check further in such things as yellow pages, the white pages and all of the various sites in which a normal business would place themselves to be found by the world at large.

4. Bankruptcy search

You should go onto the insolvency trustees services Australia website and conduct a bankruptcy search on the persons who have applied for a credit application. This is free and easy to do.

5. Company search

You should do an ACN and ABN search which can be done free to a limited degree on the NSW Office of Fair Trading Website and also on the ASIC website.  Further, a more detailed search can be done on the director of the company although there is a small fee attached to it.  If you consider that you might be at risk for $20,000 to $30,000.00 with a credit application what is the real cost of a $25.00 search to work out whether the person you are dealing with has had companies go into liquidation or is even banned as a Director.

Contact an experienced debt recovery lawyer at Sydney’s Owen Hodge Lawyers for more information and advice.

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