Every commercial debt starts as a credit decision. The business extends credit — supplies goods, delivers a service, agrees to be paid later — and the quality of that credit decision determines how easy the resulting debt is to recover if payment does not come.
Why the credit application matters
A credit application is not just an administrative formality. It is the document that establishes who you are dealing with, what they are agreeing to, and what recourse you have if they do not pay. Used properly, it is the most important document in your receivables process.
What a strong credit application includes
The essentials are: the full legal name of the entity being given credit (not just a trading name), ABN or ACN, the address of the registered office, the names and contact details of directors, the agreed credit limit and payment terms, a reference to your standard terms of trade, and — where appropriate and proportionate — a personal guarantee from directors. Signing should be by a person authorised to bind the entity.
The common gaps
The gaps that cause the most problems are: trading names without the legal entity behind them (making identification and recovery harder), unsigned or unsigned-by-the-right-person applications (making the terms questionable), and a failure to update the application when a customer restructures, changes directors or changes trading entity. An application that was signed five years ago may not bind the entity you are actually dealing with today.
When recovery depends on the paperwork
When an account goes bad, the first thing an experienced recovery professional looks at is the credit file. A complete file — application, signed terms, invoices, correspondence — is the raw material of a successful recovery. A thin file means more uncertainty and a harder outcome.
If you have accounts you are concerned about, refer them to Merion. And if you want to strengthen your credit process, our resources section has practical guides to help.