Credit application form: a template for selling on terms

A credit application gives you three things before you sell on terms:

• The right customer record. The legal name and entity type tell you who actually owes the money.
• The right route to payment. Many invoices go unpaid simply because they went to the person who ordered the work instead of accounts payable, or lacked a PO number.
• Signed terms. If the customer signs your terms at the start, there is no argument later about whether net 30 or a late fee applied.

A practical list:

1. Legal business name and any trading name. Match it to the name on the customer's contracts.
2. Entity type. Corporation, LLC, partnership or sole proprietor.
3. EIN (employer identification number), useful for matching records and for any later credit checks.
4. Years in business.
5. Registered address and billing address, if different.
6. Accounts payable contact and invoice email. The single most useful line on the form.
7. Purchase order requirements. Does every invoice need a PO number? Who issues it?
8. Bank reference. Bank name and a contact, with the customer's authorization to share information.
9. Trade references. Two or three suppliers who sell to them on terms.
10. Requested credit limit and requested terms.

Explain why you ask for the purchase order details. Our guide to purchase orders versus invoices covers why a missing PO stalls payment.

The back half of the form is a short agreement. Common clauses:

• Payment terms. For example, net 30 from the invoice date. See our guide to net 30 payment terms.
• Late fees and interest. Only at a rate that is lawful in your state and for your type of customer. The rules vary, so read our guide to late fees on invoices in the US first.
• Collection costs. A clause making the customer responsible for reasonable costs of collecting overdue amounts, where the law allows it.
• Governing law and venue. Which state's law applies.
• Right to change or withdraw credit. You can reduce the limit or move the account to payment in advance.
• Signature by an authorized officer, with name, title and date.
• Personal guarantee (optional). For a small or new business, some suppliers ask an owner to sign a separate personal guarantee. This is a significant commitment for the signer, so word it carefully.

This is general information, not legal advice. Have a lawyer in your state review the terms section, and the personal guarantee in particular, before you use it.

Copy this and replace the bracketed text.

[Your company name]
BUSINESS CREDIT APPLICATION

SECTION 1: BUSINESS DETAILS
Legal business name: [ ]
Trading name (if different): [ ]
Entity type: [ ] Corporation [ ] LLC [ ] Partnership [ ] Sole proprietor
State of formation: [ ]
EIN: [ ]
Years in business: [ ]
Registered address: [ ]
Billing address (if different): [ ]
Website: [ ]

SECTION 2: ACCOUNTS PAYABLE
AP contact name and title: [ ]
Email for invoices: [ ]
Phone: [ ]
Do invoices require a purchase order number? [ ] Yes [ ] No
If yes, who issues purchase orders? [ ]
Any other invoicing requirements (portal, format, approvals): [ ]

SECTION 3: CREDIT REQUESTED
Requested credit limit: [Amount]
Requested payment terms: [e.g. Net 30]
Expected monthly purchases: [Amount]

SECTION 4: BANK REFERENCE
Bank name: [ ]
Branch address: [ ]
Contact name and email: [ ]
Account type: [ ]

SECTION 5: TRADE REFERENCES
1. Company: [ ]  Contact: [ ]  Email: [ ]  Phone: [ ]
2. Company: [ ]  Contact: [ ]  Email: [ ]  Phone: [ ]
3. Company: [ ]  Contact: [ ]  Email: [ ]  Phone: [ ]

SECTION 6: TERMS AND CONDITIONS
1. Payment is due [Number] days from the invoice date.
2. Overdue amounts may incur [late fee or interest wording
   approved by your lawyer].
3. The applicant agrees to pay reasonable costs of collecting
   overdue amounts, to the extent permitted by law.
4. [Your company name] may change or withdraw credit at any time.
5. This agreement is governed by the laws of the State of [State].
6. The applicant authorizes [Your company name] to contact the bank
   and trade references above for credit purposes.

SECTION 7: SIGNATURE
Signed: [ ]
Name: [ ]
Title: [ ]
Date: [ ]

SECTION 8: PERSONAL GUARANTEE (OPTIONAL)
[Separate guarantee wording drafted or reviewed by your lawyer]

Send each reference a short, specific request.

Subject: Trade reference for [Applicant legal name]

Hi [Reference first name],

[Applicant legal name] has applied for credit terms with us and
listed you as a trade reference. They have authorized us to contact
you. Could you answer three quick questions?

1. How long have they bought from you on terms?
2. What terms and approximate credit limit do they have?
3. Do they usually pay on time, and if late, by how many days?

A one-line answer to each is plenty. Thanks for your help.

[Your name]
[Your company name]

Trade references usually tell you more than a bank, because they show how the customer actually pays suppliers.

If you decline or reduce a request, US rules on business credit decisions can apply. Under Regulation B, which implements the Equal Credit Opportunity Act, the notice rules differ for businesses with gross revenues of $1 million or less and for those above it, and trade credit sits with the larger-business rules. For trade credit, that means telling the applicant of the decision within a reasonable time, orally or in writing, and giving written reasons if they ask in writing within 60 days. Check 12 CFR 1002.9 or ask your lawyer if you decline applications often.

A sensible approach:

• Start with what they need, not what they ask. If they expect to buy $4,000 a month on net 30, the balance can reach roughly $8,000 by the time the first invoice is due. That is a reasonable ceiling to start.
• Weigh the references. Slow payers elsewhere will be slow with you.
• Review after three to six months. Raise the limit for customers who pay on time. Hold or reduce it for those who do not.
• Write the limit down in your accounting system so new orders over it get noticed.