CREDIT MANAGEMENT
Credit Application : Know Your Customer !
By Wasilwa Miriongi
If two of your friends approached you for a personal loan , you are likely to give one of them and deny the other or alternatively , reduce the amount altogether in essence you are performing a simple know your customer . A Know Your Customer check , or KYC , is the process that companies undertake to verify the identity of their customers and understand what risks may be present if they participate in a business relationship with the customer . True KYC , or Know Your Business ( KYB ) guidelines and procedures , fit within government regulations for bank anti-money laundering policy . This is particularly applicable in the financial sector .
In a typical business relationship , a KYC check reduces risk and can help prevent financial loss . Simply put , a proper KYC check could protect the company from fraud , financial loss and illegal activity .
It is a known fact that a well-defined credit application provides the basis for gathering information and implementing the company ’ s policies . The credit application is the primary document which allows the credit professional to “ Know Your Customer ”, according to the National Association of Credit Managers . It may also serve as a contract .
It is wise to emphasize the Purpose of a Credit Application . Every credit professional appreciates the importance of a well-thought-out , informative and properly executed ( signed ) credit application . This document is crucial to the determination of the rights of the creditor ( vendor / seller ) in the event of a dispute with , or default of , a customer .
Through the use of a well-drafted credit application , a credit professional may accomplish the dual goals of limiting credit risk , as well as addressing numerous contingencies that may arise in a credit relationship .
A credit professional may also obtain a greater understanding of the nature of the customer ’ s business simply by having
The credit application process is the credit professional ’ s first , and sometimes only , opportunity to protect their company from risk of loss through credit sales or fraud . It should be routine to ask and insist that the potential customer provide all of the information being requested on the credit application . more information with which to formulate questions about the customer ’ s business dealings . Gathering basic information about the customer , in compliance with current laws and regulations , is the core of the credit application process .
Moving to a perfect world , the credit manager should design a credit application that is concise and straightforward , yet contains all necessary information that will assist the credit analyst to make a credit decision , assist in the periodic review of the credit relationship , and provide support to counsel as needed , in the event of default .
The credit application allows the credit professional to obtain information necessary to make decisions about a customer ’ s ability and willingness to meet obligations within credit terms . This information can help increase sales of a company ’ s products to new customers at the start of their business and to existing customers as the business grows . Credit applications can also make a significant difference in the collection of the account if a customer cannot or does not pay and must be compelled to do so through litigation .
Obtaining information from some customers can be a sensitive issue . A customer may be disinclined to provide adequate information ; unwilling to sign the credit application document ; or become belligerent or uncooperative at the suggestion that the completed credit application is a prerequisite of the extension of credit .
88 MAL42 / 21 ISSUE