1. Orange County | Los Angeles | New York
THE CREDIT APPLICATION AND VENDOR CONTRACT: WHAT THEY ARE, WHAT THEY DO AND KEY TERMS AND CONDITIONS THAT MAY PROTECT YOU FROM CREDIT LOSSES AND CUSTOMER TERMS PUSHBACK
Scott Blakeley, Esq.
V. (949)
Orange County | Los Angeles | New York
Chris Finch
Director of Credit,
Sumitomo Electric
Susan Archibeque, CCE
Director of Credit,
Nicholas & Company, Inc

2. THE CREDIT APPLICATION AND VENDOR CONTRACT

3. THE CONTRACTUAL DOCUMENTS THAT GOVERN THE TRADE RELATIONSHIP
THE CREDIT APPLICATION AND VENDOR CONTRACT
THE CONTRACTUAL DOCUMENTS THAT GOVERN THE TRADE RELATIONSHIP
Sales team
Information
Credit team pref
Credit team
Credit Application
Information &
T’s and C’s
Who has the Trade Leverage?
Indispensable customers or key supplier?
Sales team/customer pref
Offer to buy
An acceptance of an offer to sell
Confirmation of a verbal agreement
New Account
Set up
P.O.’s and Invoices
Customer pref
Customer-Supplied Vendor Contract

4. THE CREDIT APPLICATION AND VENDOR CONTRACT
Credit Enhancements

5. THE CREDIT APPLICATION AND VENDOR CONTRACT
What Contractual Documents Govern the Trade Relationship
P.O.’s and Invoices
Offer to Buy
An Acceptance of an Offer to Sell
Confirmation of a Verbal Agreement

6. Four “P’s” of Credit Credit Scoring
THE CREDIT APPLICATION AND VENDOR CONTRACT
Four “P’s” of Credit
People (who’s running the business) Profit (your margins)
Payment (track record, new financials)
Protection (security obtained) Politics (country conditions)
Perspective (assessment of earlier “P’s” taken together, cost-benefit analysis)
Credit Scoring
Payment predictability/collectability
Ultimate solvency/insolvency
Training and guiding new customers
Identify traits of desirable Customers
Identify traits of undesirable Customers
Creates a database for flexible reporting
Automated versions save the time of professionals
Allows comparison of customers with similar traits
Manage risk by segment or characteristics
Ability to adjust risk by adjusting model components
Internal vs. external data inputs

7. Credit Policy THE CREDIT APPLICATION AND VENDOR CONTRACT
Set the appropriate risk and exposure for a customer
Credit Limit
Protect company assets
Bankruptcies
Limit write-off exposure
Out of business Fraud
Reduce likelihood of having aged invoices
Slow/no pay situations
Assist in growing profitable sales
Proper administration of credit Partnering opportunities
Indicate who has authority to grant/deny credit to customer, to reduce conflict between credit and sales

8. Types of Direct Investigation Types of Indirect Investigation
THE CREDIT APPLICATION AND VENDOR CONTRACT
Types of Direct Investigation
Direct correspondence order
Telephone contacts
Sales representatives
Terms of sale
Bank information; Trade information; Public records
Other sources such as newspaper, Internet, etc.
Types of Indirect Investigation
Credit data companies
dun&bradstreet; creditriskmonitor
Credit.Net; Cortera
National Trade Credit Reports
Credit trade organizations; NACM

9. THE CREDIT APPLICATION AND VENDOR CONTRACT
Customer information
Type of business; Type of operation; Legal entity; Years in business
Customer financial information (may be limited or unavailable)
Self reported, ask the customer
Third party (D&B, CreditRiskMonitor, Cortera, Experian, Credit.net, etc.)
Bank information
Bank reference; Account balance; Available credit line
Trade information
Number of trades; High credit limit; Average balance
What product or service does the customer sell
Profit margin
Risk of the product
Who are their competitors
Industry information
What industry is the customer in Economy of the industry Customers position in the industry
Economic information
General economic condition; Capital markets
Ability to borrow capital

10. THE CREDIT APPLICATION AND VENDOR CONTRACT
Types of Financials:
Audit:
Unqualified Audit; Qualified Audit; Adverse; Disclaimer
Other:
Reviewed; Compiled; Company prepared
What to look for when you don’t have financial or performance information?
Sales volume
Ask the customer or estimate based on other factors
Position in the market or industry
Company size
Size and number of facilities
Type of equipment
Number of employees

11. THE CREDIT APPLICATION AND VENDOR CONTRACT
Terms and Conditions
Applicant will not withhold payment when disputes arise. Only the disputed portion of a past-due balance may be withheld
Applicant agrees to pay all costs of collection (attorneys’ fees and court costs)
Applicant agrees to the specified governing law and forum selection clause
Waiver/duty to inspect within fixed time period

12. THE CREDIT APPLICATION AND VENDOR CONTRACT
Terms and Conditions (cont.)
Waiver of counterclaims
Waiver of consequential damages
Notice of change of ownership and sale or disposition of assets
Incorporation of financial statement
TPS / Battle of the Forms / Amendment of Credit App.
International Sales of Goods Contracts

13. THE CREDIT APPLICATION AND VENDOR CONTRACT
Legal Considerations
The Electronic Signature in Global and National Commerce Act (E-SIGN)
The Equal Credit Opportunity Act (ECOA)
The Fair Credit Reporting Act (FCRA)
Sarbanes-Oxley Act (SOX)

14. THE CREDIT APPLICATION AND VENDOR CONTRACT
Antitrust
Sharing and receiving credit information from third parties falls under the Sherman Act
Setting pricing/credit terms falls under the Robinson-Patman Act
Privacy Rights and the Credit Application
Purpose
Key Terms
Notice Requirement
Complying

15. THE CREDIT APPLICATION AND VENDOR CONTRACT
Disposing Of the Credit Application
Holding Period
Destroying the Credit Application and Information
Confidentiality Agreement

16. THE CREDIT APPLICATION AND VENDOR CONTRACT
Organizational Chart
–Include roles of each credit professional
–Should discuss interplay with other groups (like sales and/or those that can override credit procedures)
Tasks
–Credit Applications
–Turnaround times for credit review
–Modes of communication ( , fax, phone, etc)
–File procedures (updates, maintenance, organization, naming conventions)
–SOP on establishing credit limits

17. THE CREDIT APPLICATION AND VENDOR CONTRACT
Credit Terms
What are your standard terms? Net 30? Net 15? Net 30, but 2% discount if paid in Net 7?
Your policy should dictate what terms you grant and when and under conditions you can deviate from standard terms
Classes of customers –maybe you give better terms (or worse) based on class
Blanket allowances of credit amount
When can terms/limits change
Who authorizes changes
When/who can use changes to negotiate enhanced credit protections

18. THE CREDIT APPLICATION AND VENDOR CONTRACT
Investigation to determine creditworthiness
Set limits based on tolerance of company
Investigate if limits requested are beyond
Which credit reporting agencies should you use (required to use)
Bank references/trade references/NACM trade reports
Request/review financial statements
Payment history
Reimer reports
Use Google, social media, etc…
Lien and litigation searches
Guaranties, lines of credit/letters of credit/pledges
Who signs off on investigation/approves increased limits?
Chain of credit employees/management to approve

19. THE CREDIT APPLICATION AND VENDOR CONTRACT
Policy on bad debt
When does debt go to a collection agency
When do you hire attorneys
Do you have a policy on serving on creditors’ committees in chapter 11 cases
What if a customer files for bankruptcy
Filing a claim (pay careful attention to section 503(b)(9) claims)
Critical vendor status

20. THE CREDIT APPLICATION AND VENDOR CONTRACT
A complete credit policy must address at least the following situations:
New customer accounts
Foreign accounts
Updating and maintaining credit files
Extending/increasing credit terms/limits
Selection of collection agency and counsel
Charge offs
Communications with Banks
Managing/creating reports
Others???

21. THE CREDIT APPLICATION AND VENDOR CONTRACT
Review all company produced documents
Terms and conditions (net 30, 1.5%/18% interest, late fees, collection costs, etc..) should all be consistent between policy, credit application, invoices, etc...
Credit Policy and other documents/contracts should all include identical choice of law/venue provisions
Credit Policy should mandate credit application including acknowledgment that invoice terms apply, despite any further offers/acceptances; any change in terms must be via a signed, separate acknowledgment, requiring two non-electronic signatures.

24. THE CREDIT APPLICATION AND VENDOR CONTRACT
Social Media
Antirust and competition laws apply to all forms of business conduct and contact, no matter now “novel” they may be. Social media (Facebook, Linkedin, Twitter, blogs, etc.) certainly offers unique marketing options and creates some intriguing business opportunities for informal communications, but, at the same time, also heightens a company’s risk of committing antitrust or competition law violations
Just like , social media use creates an audit trail, replete with documentation highlighting potential violations of antitrust laws

25. THE CREDIT APPLICATION AND VENDOR CONTRACT

26. THE CREDIT APPLICATION AND VENDOR CONTRACT
Social Media information from a service that aggregates across multiply sources
Internal company policy prohibiting use of social media as a source of information?
Fair Credit Reporting Act
State Privacy Laws
Fair Debt Collection Practices Act
Facebook
Twitter
Linkedin
Pinterest
Google
Tumblr.
Instagram VK
Flickr
Vine
Meetup
Tagged
Ask.fm
Meetme
classmates