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Most commercial credit applications contain a very important provision which too often is forgotten once the credit account is established.  The provision places the burden upon the customer to inform the creditor of any changes in corporate structure or with regards to guarantors.  The reason for the provision is obvious – you need to know to whom you are extending credit.  The challenges in today’s world of computers is imputing knowledge to the corporation where a name gets changed on the account without the credit department being notified.

It is important that all staff – sales, counter, and credit department – be trained so that they understand the legal ramifications of certain actions which might otherwise just seem to be good customer service.  Think about the sole proprietor running his “dba” so that the credit account was opened for John Doe doing business as John Doe Plumbing and without a guarantor.  A year or so later, Mr. Doe submits an order for JD Plumbing Inc., dba John Doe Plumbing.  The salesperson taking the order says, “we do not have an account for JD Plumbing Inc.”  The reply is “oh, yeah, the account used to be John Doe Plumbing, can you change the name in your system?”  Or, the salesperson volunteers to make the change without asking to avoid the same confusion in the future. Either way, the creditor’s corporate computer system now shows the corporation’s name and the creditor will be assumed to have the knowledge of the change.

The change in the system becomes evidence that the creditor was aware of the change and did not take action to protect itself.  The evidence may or may not be persuasive in a court if the credit application required written notice, but the issue certainly will cost more to fight if a collection effort arises.  The key is to set a regular schedule for comparing the credit applications to the computer system and ask the appropriate questions if the two do not match.


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