It is also called a credit account application or new account form. It usually includes your terms and conditions of sale, so a customer that signs it also agrees to your payment terms, your charges for late payment and any retention of title clause. That makes it the start of trade credit with the customer, not just a form.
What to include in a credit application
| Section | What to ask for | Why |
|---|---|---|
| Company details | Legal name, registration number, VAT or tax number, addresses and years trading | To identify the legal entity and check it in public registers |
| Owners and contacts | Directors or owners, the accounts payable contact and who approves invoices | To know who decides and where invoices go |
| Credit requested | Expected monthly purchases, the limit and the terms wanted | To size the risk |
| Bank reference | Bank name and permission to ask for a reference | To confirm the account is run properly |
| Trade references | Two or three suppliers that give the customer credit | To see how it pays others |
| Financial information | Latest accounts, or management accounts for larger limits | To check it can afford the credit |
| Signature and consent | Acceptance of your terms, consent to credit checks, name and date | To make the terms and checks valid |
| Personal guarantee, if used | A director's guarantee of the company's debts | Security for small or new companies |
How to review a credit application
- Confirm the company exists. Check the registration number and directors in the public register, such as Companies House in the UK or the business registry of the state where a US company is formed.
- Get a credit report. Look at payment history, court judgments and the limit the agency suggests.
- Call the references. Ask what terms they give, the usual balance and whether the customer pays on time. Customers tend to list suppliers they pay well, so treat good references as a minimum, not proof.
- Read the accounts. Check profit, net assets and how the customer funds its own working capital.
- Decide terms and a limit. Set payment terms, such as net 30, and a credit limit that the evidence supports.
- Confirm in writing. Tell the customer the terms and the limit before the first order ships.
Credit application example
Example. Alder Packaging applies for net 30 terms and a $60,000 limit, and expects to buy about $35,000 a month. Its trade references give it net 30 and say it usually pays in 35 to 40 days, and its credit report suggests a limit of $50,000. With a 15-day margin for late payment, the purchases method gives $35,000 × (30 + 15) ÷ 30 = $52,500. You approve net 30 with a $50,000 limit, the lowest of the three figures, and review it after six months of payments. All figures are illustrative.
Legal points to get right
- Terms bind only if agreed. Put your terms and conditions in the application or attach them, and have them signed before the first delivery.
- Guarantees must be in writing. A personal guarantee has to be in writing and signed by the guarantor to be enforced in England and Wales, and most US states have a similar rule.
- Data protection. For sole traders and partnerships, a credit check is a check on individuals, so the form should say which checks you run and how you use the data, as UK and EU data protection law requires.
- US notice rules. Regulation B under the Equal Credit Opportunity Act also covers business credit, including how you tell an applicant you have turned it down, as explained under credit limit.
When to ask for a new credit application
Ask again when the ownership changes, when the customer wants a much higher limit, after a long gap in trading or when the legal entity you sell to changes, for example after a merger. A new legal entity is a new customer, even if the people and the trading name stay the same.
Once an account is open, Sunbay shows how the customer actually pays. It connects to your ERP or accounting system, reminds customers by email and SMS before and after the due date, keeps every reply and promise to pay next to the invoice and reports DSO and aging in its analytics view, the record you need when a customer asks for a higher limit.
Frequently asked questions
What is a business credit application?
It is the form a business fills in to buy from a supplier on credit terms. It gives the supplier what it needs to check the business and set payment terms and a credit limit, and it usually includes the supplier's terms of sale.
What are trade references?
They are other suppliers that already give the applicant credit. They can tell you the terms they give, the usual balance and whether the customer pays on time.
Can a credit application include a personal guarantee?
Yes. Suppliers often ask directors of small or new companies to guarantee the company's debts. The guarantee should be a separate, clearly marked section signed by the guarantor personally.
Do you need a credit application for every customer?
For every customer you give credit terms to, yes. Customers who pay in advance or by card at the time of the order do not need one.
.svg)
.svg)