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Credit Departments' Pursuit of Electronic Credit Applications.

In the early days of business-to-business credit, it was commonplace for credit departments to not only support but use a "paper is perfect" policy. Nothing seemed more finite than a hard copy of a customer's submitted credit application with a handwritten signature or payment in the form of a crisp paper check. With the digital age well underway, the days of paper documents and payments are less frequent as credit departments begin to embrace electronic credit applications.

Same Legal Standing

What credit managers must keep in mind is there must be no loss of potential or existing customer information during the transition from a paper to an electronic credit application. The same standard customer information is necessary and includes the applicant's legal name, legal structure and business address as well as ownership information and tax identification number. A company's terms and conditions, interest rates, attorney's fees and costs of collection, and venue and jurisdiction must also be included,

Just like a paper application, an electronic application can become a legally binding contract, albeit with a little twist: the electronic signature (e-signature), According to U.S. law, an e-signature is "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." In other words, e-signatures are the electronic version of a handwritten signature and are completed by the signee's name being typed or otherwise provided by way of a computer in the space provided, Credit applications with handwritten signatures that are then emailed or faxed do not qualify as e-signatures,

According to Attorney Wanda Borges of Borges & Associates, LLC, in New York, any contract between a creditor and a customer becomes binding as long as it includes an offer and acceptance, evidence of mutual assent, both parties' capacity to enter the contract and the subject matter's legality and consideration. The contract is officially accepted by the customer once they provide their e-signature.

Borges discussed electronic applications and drew from her experiences in the courtroom during her presentation, "Electronic Signatures, Electronic Credit Applications, Where Technology Is Going and How the Courts Are Reacting," at NACM's 123rd annual Credit Congress & Expo in Colorado in May.

Changes to Format

Although the typical information stays intact, the format in which information is conveyed may change slightly on an electronic credit application, e.g., terms and conditions. Customers are often overwhelmed by paper applications when they include pages and pages of a company's terms and conditions, which they may not read in its entirety. Terms and conditions on an electronic application, however, can be updated routinely rather than leave credit managers scrambling to update hundreds of thousands of paper applications when the department wishes to add or remove policies,

"If you can start off with your credit application being signed electronically, think of all the things you can put into your terms and conditions that will now bind your customers to these terms and conditions," Borges said. "You have the opportunity to go back to your customers and say, 'We are revamping our systems. We are updating all of our documentation. Here's a new electronic document so that we can have all of your current customer information and all of our current terms and conditions in one place!"

In addition, the electronic platform gives credit managers the ability to list every term and condition they see fit, but can do so by referring the customer to the company's website where all of the terms and conditions are listed. If there is ever a case where a customer denies agreeing to the terms and conditions via e-signature, Borges said credit managers must be able to prove those specific terms and conditions were in place the day the e-signature was completed, Describing this as "one of the biggest benefits of electronic signatures," Borges said the risk then shifts to the customer who may not read all of the terms and conditions but e-sign the document anyway.

"Credit has to be nimble to adjust to this evolving world of automation, digitalization and artificial intelligence in order to succeed,"

"What those parties try to claim is that they didn't see the terms and conditions, but too bad," Borges said. "The court continually leans on the fact that we have no reason not to give enforceability to an electronic document. What the court says is that if [the e-signature] was clear and obvious, then [the customer] can't say [they] didn't know [about the terms and conditions]."

Piquing Credit Managers' Interest

Several NACM members who attended Borges' session agree that paper is currently at the forefront of their credit departments' application process; however, some credit managers said they attended to learn more about the transition on behalf of their companies,

Paper applications get the job done, but for Credit Manager Sean Reimer, they are a problem when customers return them with incomplete or insufficient information. Reimer works in the credit department at Barrette Outdoor Living in New Jersey, where he said all fingers are pointing to the eventual use of electronic credit applications due to the company's ongoing growth. Today, the company follows a manual process but has started exploring electronic options by gathering information from presentations and demonstrations.

"Some of our paper files were lacking or incomplete," Reimer said. "If you can send out an email request to say, 'Please e-sign this documentation for our files,' I think it's a way to make sure your files are complete and thorough, and you have all the security in place going forward, We're just trying to be a more efficient company and make sure we have all documentation on file, with our i's dotted and t's crossed."

Electronic applications won't necessarily eliminate customers who return incomplete applications; however, Reimer said, credit managers can instantly alert customers to the lack of information via email to course correct and, therefore, speed up the credit approval process,

Another benefit is as simple as improving customers' legibility, said Gina Owen, assistant credit manager at National Cement of Alabama. No more will there be blurred or smudged documents that require credit managers to clarify the information with the customer or ask for a new copy, which delays the approval process,

"I do not know of any reason why a company should not consider going electronic," Owen said, But she noted companies will need help from their IT departments. According to Borges, companies do have the option to create an electronic application internally because some IT departments can develop mechanisms for safely transmitting electronic data with encryption so that any personal data is protected, Yet, there is a second option,

"There are several companies out there that are now making a living on creating electronic documents," Borges said, Bectran, Billtrust and HighRadius to name a few. "I recommend credit departments find a company to set up the electronic credit application because why reinvent the wheel? I find a lot more [credit departments] are using outside companies."

At Teck Resources in Vancouver, Canada, Credit Manager Esteia Frias, CPA, CMA, CTP, CCE, said embracing this newfound technology is about maximizing results, eliminating routine tasks and consolidating credit-granting decision files in "one seamless system." Like Barrette Outdoor Living and National Cement of Alabama, Teck Resources has yet to adopt this technology but is pursuing the idea,

"In the changing times and the technology age, customers are looking for a way to do things electronically."

"Credit has to be nimble to adjust to this evolving world of automation, digitalization and artificial intelligence in order to succeed," Frias said. "The success of our company has been anchored on transformation by harnessing technology and innovation to create a step change in safety, sustainability, profitability and productivity."

Acceptance must also come from the customers. In Illinois, Nutrien Senior Regional Credit Manager Jennifer A. Dungan, CCE, ICCE, RGCP, said her company is implementing electronic credit applications with HighRadius and is anxious to see how customers respond.

"We are nervous we'll get pushback from customers wanting to fill out a paper application," Dungan said. "We are also concerned with the validity of the e-signatures and have our legal folks currently looking into it."

But from the perspective of District Credit Manager Barbara Roy, CBF, Louisiana-based Hajoca Corp/LCR-M/ The Plumbing Warehouse anticipates positive customer feedback.

"I am definitely in favor of [electronic credit applications]," Roy said. "In the changing times and the technology age, customers are looking for a way to do things electronically."

Andrew Michaels, editorial associate, can be reached at andrewm@nacm.org.
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Title Annotation:SELECTED TOPIC
Author:Michaels, Andrew
Publication:Business Credit
Date:Jul 1, 2019
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