Monthly Archives: September 2014

Designing A Credit Application That Works For Your Business (And Not Your Customer)

Few customers offer to pay in cash.  Most want some form of credit.  What credit you extend results from an objective and subjective assessment of the prospective customer’s credit-worthiness.  The steps you take to assess credit worthiness can mean the difference between a good paying customer and one who can, quite literally, put you out of business.

Your product is valuable.  You do not want to just give it away for free, which is what you are likely to do if you do not require a credit application and verify information.

1. WHY Use a Credit Application?
Extension of credit is about trust.  Credit applications are important at the beginning of any creditor-debtor relationship to test the credit worthiness (and veracity) of the prospective customer.  The credit application should work for your business by allowing you to test the ability of your customer to pay its bills when they come due.

A complete and updated credit application can also provide a wealth of information should it become necessary to collect a stale debt.  There are generic credit applications available on the internet or in business supply stores.  They are not industry specific.  You may want to look at what competitors who are doing well in your industry may be using.  Bottom line: design one that fits and works for you.

2. WHAT Information Should a Credit Application Request?
Finding useful information about a business, especially one that has only been operating a short time, is difficult.  That is why a credit application is important.  Credit applications are not just about information, but useful information.  Think about what information you need now (to approve credit terms) or in the future (should the relationship sour).

A credit application should require the following minimum information:

  • Name of business and years in existence
  • Type of business and names, address, telephone number, and driver’s licenses of owners
  • Billing address (not a P.O. Box), telephone number, fax number, website address, email address
  • Shipping Address
  • Trade reporting service (e.g., Red Book) reference number
  • USDA PACA license number
  • Bank information, including name, address, telephone and account number (consider asking for a cancelled check)
  • Trade references – at least three in the industry
  • Terms of payment
  • Guaranty agreement

Think about: the state the business was formed, the social security numbers and/or driver’s license numbers of the owners of the business (especially if they are guarantors), and whether they rent or own their office.  The most important information is how long the customer has been in business, bank information, and trade references.

When contacting references ask: what were the terms, what credit limit was extended, what is the payment history?

Make sure the application is completed and signed.  A signature verifying that the information it correct is important as it binds the customer to the agreement.  It may also help to except the debt from discharge in a bankruptcy if the information was not truthful.

3.   HOW To Make The Most Out Of Your Credit Application

Here are some tips to get the most out of your credit application:

  • Trust but verify.  Check ALL of the information provided.  Be proactive.  Make sure the application is complete.  If there are blanks, ask why.  An application for credit should be more than a formality of doing business.  Check the information regularly.
  • Verify the business exists.  Most business, if legitimate, file documents with state authorities.  Check with state and local authorities to be sure the customer is who they say they are.
  • Be aware of the law.  Business credit checks are legal under the Fair Credit Reporting Act.  You may not generally check an individual’s credit without their permission.  Consult legal counsel when in doubt about anything legal.
    Beware of foreign customers.  When dealing foreign businesses consider requiring a letter of credit or some other collateral to secure payment.
  • Verify authority.  Make sure the application is signed by an authorized agent.  Get a title.
  • An application is a contract.  A signed application for credit, which incorporates key terms of the engagement, e.g., payment and delivery terms, recovery of costs of collection and accrual of interest, are essential. This is particularly true if you are altering the prompt payment terms in the PACA.
  • Consider a guaranty.  When dealing with new customers, enhance collection and emphasize the seriousness of the relationship by requiring a personal guaranty.  Make sure it is absolute and continuing in form and does not require that you liquidate the claim against the customer prior to enforcing the guaranty.

Be careful out there.  Considerate attention to the credit application and process will, hopefully ensure a solid and profitable relationship with your customer going forward.

Bruce W. Akerly is a partner with Cantey Hanger LLP.

You’re Not From Texas…But a Texas Court Wants You Anyway! Frequently Asked Questions About Litigating in Texas

We often collaborate on trial teams with lawyers from around the country.  Here are some of the questions we are routinely asked as we move through the life-cycle of a lawsuit.  Obviously, there are unique features to every case, or particular local rules, which may result in a different answer than is given here.  However, we hope this is a helpful primer for out-of-state lawyers who find themselves representing a client in a Texas state court.

What is a “general denial”?  Is that all that is required in my answer?

Texas Rule of Civil Procedure 92 allows a defendant to simply assert a general denial putting most non-jurisdictional matters in issue.  Specific affirmations or denials of the factual assertions in a plaintiff’s petition (as in federal court) are not necessary, although affirmative defenses should be specifically stated (TRCP 94) and some must be verified by the defendant (TRCP 93).  As in most jurisdictions, challenges to jurisdiction must also be raised prior to filing an answer or making any other form of general appearance (TRCP 120a).

Can I protect my client’s trade secrets and other proprietary information if they are filed in the public records?

Yes.  Although it can be quite tedious, Texas case law and Texas Rule of Civil Procedure 76a permit such records to be sealed by a court upon motion and a proper showing.

Can I move to dismiss a suit for failure to state a claim?  What are special exceptions?

Texas does not have a direct analogue to Federal Rule of Civil Procedure 12(b)(6).  Texas Rule of Civil Procedure 91a does provide for the dismissal of an action “on the grounds that it has no basis in law or fact” but defines such circumstances pretty narrowly.  The rule also provides for the award of attorney fees to the prevailing party.  However, this rule only became law in March 2013 so there is little guidance on how it will be interpreted.

Another procedural vehicle for challenging a claim at the outset of a case is a special exception under Texas Rule of Civil Procedure 91.  This rule is generally used to challenge the adequacy of a party’s claim or can be used to challenge a claim that is not permitted under Texas substantive law.

How long do I have to respond to a non-dispositive motion that has been filed against me?

There are exceptions, but most non-dispositive motions do not have a deadline for filing a written response.  Filing a response prior to the scheduled hearing is sufficient.  However, most non-dispositive motions can be set on three-day’s notice, so you will not necessarily have a long time to prepare a written response.

Summary judgment motions do have a timeline for filing and response.  First, a summary judgment motion must be on file at least 21 days before it can be heard. (TRCP 166a)  Second, any opposing affidavits or written response should be on file no later than 7 days before the hearing. (Id.)

How long can a motion or response be?  Are there page limits?

Unless a local rule dictates otherwise, the Texas Rules of Civil Procedure do not have page limits for motion practice before trial courts.  Page limits usually only come into play in appellate proceedings.

What objections can I lodge during a deposition?

Objections to questions during an oral deposition are limited to “Objection, leading” and “Objection, form.”  Objections to testimony during an oral deposition are limited to “Objection, nonresponsive.”  However, if asked when the objection is made, the objecting party must give a clear and concise explanation of the objection or the objection is waived.  Otherwise, speaking objections are not permitted.

You may instruct a witness not to answer a question during an oral deposition if necessary to preserve a privilege, comply with a court order or the rules, protect a witness from an abusive question or one for which any answer would be misleading, or to obtain a ruling from the court.  Again, if asked, the attorney instructing the witness not to answer must give a concise, nonargumentative, and nonsuggestive explanation of the grounds for the instruction.

Do I really have to produce all of my communications with a testifying expert?  And drafts of the expert report?

Yes.  Texas Rule of Civil Procedure 194.2 requires production of “all documents, tangible things, reports, models, or data compilations that have been provided to, reviewed by, or prepared by or for the expert in anticipation of the expert’s testimony.”  Unlike the Federal Rules, this includes drafts of the expert’s report.

What needs to go on a Texas privilege log?

The withholding party must describe the information withheld that, without revealing the privileged information itself or otherwise waiving the privilege, enables the other parties to assess the applicability of the privilege and asserts a specific privilege for each item or group of items withheld. (TRCP 193.3(b)(1))

That said, a withholding party does not need to disclose that it is withholding a privileged document that (i) is created from the time when a party consults a lawyer regarding the prosecution or defense of a specific claim in the litigation in which discovery is requested, and (ii) concerns the litigation in which the discovery is requested. (TRCP 193.3(c)).


Scott Fredricks is a partner in the Intellectual Property and Litigation Practice Groups at Cantey Hanger LLP.

Scott A. Fredricks, partner

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