Credit Application Terms and Conditions: What Should They Include?

Authors: Marcos Fontes & Zeinab Farhat, Progressive Legal

If you are a business owner who regularly comes across credit applications, it is important that you have terms and conditions in place to protect your business and clarify your expectations. These terms will provide clear guidelines on the terms of credit and help mitigate risks associated with non-payment.

This article will consider: what a credit application is, what credit application terms and conditions are and what to include them, when you need credit application terms and conditions, and key takeaways.  

What is a credit application?

A credit application is a formal request made by a business or individuals to obtain credit from a supplier, lender, or financial institution.

This application provides necessary details about the applicant’s financial history, credit arrangement, and agreement to repay the debt on agreed terms. Credit applications are essential for any business that offer goods or services on a deferred payment basis, as they help assess the risk of granting credit to a customer. 

What are credit application terms and conditions? 

What should be included in credit application terms and conditions?  

Having a clearly defined terms and conditions can help resolve disputes over payment and clarify expectations if the applicant fails to meet their obligations. When both parties sign these terms, they serve as useful reference point for resolving misunderstanding. 

Credit application terms and conditions should cover (among other things) the following key elements: 

a) Credit limits and payment terms

Define the maximum credit limit and the payment terms clearly, using plain English. Request the applicant’s bank details, including an account name, BSB and bank location, and specify acceptable payment methods (cash, Eftpos, credit or debit cards, online payments, BPAY, etc). 

b) Interest rates and late fees

detail the interest rate applicable to overdue accounts and any late fees that will be charged if payments are not made on time. 

c) Personal and business information

The applicant’s personal information, such as name, address, email address, mobile phone numbers. If the applicant is a business, take the business information, such as if they are sole trader, company, association or trustee of a trust, ACN number, registered business name, director’s name and registered address, phone numbers, email address and business address (ensure it is a street address, as Court documents cannot be served to a POX box). 

d) Guarantee and indemnity

If the applicant is a company, a personal guarantee from the directors may be required to ensure personal liability for the debt. This will ensure that if the company goes into liquidation, the directors can be personally pursued for any outstanding debt. To facilitate this, gather the directors’ full contact details, including mobile number, email address and street address. 

e) Credit checks and privacy consent

Setting out a provision that allows the creditor to run credit checks and access the applicant’s credit history is always advisable. Ensure that the applicant consents to these checks in compliance with the Privacy Act 1988 (Cth) .

f) Security interest

Include a clause allowing the creditor to register an interest in the goods sold under the Personal Property and Securities Register (PPSR). Specify that the Personal Property Securities Act applies to any products or services supplied by the creditor. This may include registering interests in assets such as equipment, vehicles and other properties. 

g) Caveatable interest

Include a provision stating that if the applicant defaults, the creditor will have the right to lodge a caveat over any property owned by the applicant, which means the applicant will not be able to sell a property until any outstanding debts are paid. 

h) Default and termination

Clauses that will outline actions the creditor can take in case of default, such as suspension of credit or legal action. 

i) Governing law

Specify which jurisdiction’s law will apply to the credit application terms.

When do you need credit application terms and conditions?  

Credit application terms and conditions are crucial when a business extends credit to its customers, especially in the following situations: 

Selling goods or services on account

companies often allow customers to purchase now and pay later, and credit application terms and conditions govern the payment timeline and consequences in case of non-payment. 

Supplier or vendor relationships

Suppliers may require credit application terms when offering bulk goods or services to ensure they are paid after the products are delivered. 

Mitigating non-payment risk

A clear set of terms helps reduce the risk of non-payment and provides a legal foundation for chasing overdue payments. 

New customers or high-value transactions

For new business relationships or large transactions, credit application terms offer additional protection for both the creditor and the applicant. 

Key Takeaways

Credit application terms and conditions are essential for business offering credit, as they establish the framework under which credit will be provided. They serve as a critical risk management tool, ensuring that both parties are clear on payment obligations, interest rates, and the consequences of default. It is important to ensure that these terms are clear, legally enforceable and tailored to the specific needs of the business and the customer. 

If you are unsure about your credit application terms and conditions or need assistance drafting them, our experienced commercial team at Progressive Legal can guide you through the process. Contact us today to learn more.

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