When to ask for updated credit applications

Thea Dudley

Dear Thea,

How often should we be getting updated credit applications signed by our customers? Is there a period of inactivity on the account that should be a factor to consider if we ask the customer to sign the forms again? My sales reps are against us asking for updated credit applications. What is the appropriate amount of time?

Signed, Wondering in Walla Walla

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Dear Walla,

Sometimes I just want someone to hug me and say, “I know it’s hard in credit, but you are going to be ok. Here is chocolate and $6 million.” Instead, I get people telling me why what I am asking for is wrong, inappropriate, or offensive. I love your question—there is no wrong answer to this one, but the request usually always gets a pushback.

There is no “appropriate” amount of time listed in the Big Book of All Things in Credit Management for when to ask for an updated credit application, or the appropriate amount time to “refresh” an account after inactivity.

Like most items that make up the wonderful world of credit management, it is really up to you and your company to decide what guidelines you want to put in place. I said most items because, let’s be honest here, some things are just plain common sense (like not shipping orders when someone’s account balances look like God’s waiting room.)

I find it helps grease the wheels of credit common sense to have a solid plan when approaching your newly-wheeled-out guide to the when and why of the updated credit application request.

Have a few “guides” of thumb (I am not big on rules, so we go with “guides.” Typically, rules are just begging to be broken and then you have to explain it away when you allow it to happen). I try to have some things that are a little difficult to argue with.

Here is my short list:

1.     Any time there is an ownership change.

2.     If there is a name change.

3.     If the company is sold, regardless if the name changes or not.

4.     If the credit application is over five years old and the customers pay habits have declined significantly (significantly is how YOU define it).

It is a pretty easy sell to everyone in the company when you spell it out that the credit application is a legally-binding document. If the worst happens and we end up in court, we need to be clear about who we are suing. If business is a game, then think of the credit application as the rules of the game.

You also asked about inactivity. What is the expectation on credit applications when the account has not been active? What do you consider inactive? One month? Two Months? A year of no purchases? I like to go with four months. Four months of no purchases from me and that customer is being asked for a new credit application and new credit reports. I want to know where they have been purchasing since it was not from me and why am I suddenly “winning” them back. I understand customers have choices, but my suspicious credit manager mind goes to the dark side and has to wonder—who just cut this customer off that suddenly I have the golden ticket of his business back? Please don’t tell me it was just sales rep charm. Four months is aggressive, so adjust according to what you feel works for you.

If you are performing customer account credit reviews on a yearly basis, you can avoid asking for new credit applications on active, paying accounts by calling up and simply asking to confirm some information such as ownership, accounts payable person, email addresses—the usual suspects.

Stop worrying about rules and start deciding what makes the most sense for your business. In the meantime, I will eat your share of the chocolates, accept the credit manager hug, and wait patiently for my cool $6 million.


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