The simple Credit Application Form can make or break the debt recovery efforts of your organisation. By ensuring your Credit Application Form is properly drafted, you can avoid issues that often arise when trying to reclaim unpaid debts and protect the financial stability of your organisation.
See below for five common issues that arise when reclaiming debt, and how your Credit Application Form can help you avoid them.
1. The person seeking credit is not who you think they areSolution - know who you're dealing with. Request the applicant provide a company certificate or business name registration when they apply for credit with your organisation. There are useful online resources where you can conduct a free search of the registry to know exactly who you're dealing with.
2. The person who placed the order had no authoritySolution - request a letter of authority. The business who owes the debt may claim that the person who initially placed the order had no authority to do so. To avoid this situation, request a letter from the customer at the outset that outlines who has authority to place orders on the customer's behalf.
3. Only some of your customer's invoices are overdueSolution - include an acceleration clause. When a customer has some overdue invoices, but others not yet due, your organisation will either have to wait until all invoices become due and payable, or commence two separate legal proceedings to reclaim the debts. By including an acceleration clause in your Credit Application Form, your organisation will be able to commence legal proceedings once an invoice is overdue and claim for all invoices with that customer.
4. The customer goes into liquidationSolution - include a personal guarantee. If a company goes into liquidation and your Credit Application Form includes no personal guarantee, there may be no further recourse to recover the debt owed to your organisation. A personal guarantee will ensure that any Credit Applications are not approved until the personal guarantee is executed.
5. No access to guarantor's propertySolution - incorporate a charging clause. By incorporating a charging clause into your organisation's personal guarantee, this will enable your organisation's debt in a guarantor's property.
If you are struggling to reclaim unpaid debts, or are seeking assistance with your organisation's Credit Application Form, please contact a member of Shine's Insolvency and Debt Recovery division today.
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Written by Shine Lawyers. Last modified: February 4, 2020.