Adopting the Electronic Credit Application

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1 Adopting the Electronic Credit Application With major advances in digital technology and a drive to reduce or eliminate paper as a vehicle to gather and store information related to credit and receivable management, CRF has had numerous inquiries pertaining to the adoption of the electronic credit application as a vehicle to enhance the new account management process. With the near universal acceptance of digital signatures and significant improvements in security related to digital transactions, the implementation of an electronic credit application process is beginning to make sense to a number of businesses throughout the country. An electronic credit application affords far greater accuracy, it significantly reduces the turnaround time in opening the new account, it eliminates the need to store cumbersome paper files and it affords the new account customer the convenience of filling out and submitting the credit application via the internet. The Credit Research Foundation With this in mind CRF has developed, for the benefit of its members, an interactive electronic credit application template in PDF format. This document allows for input of all pertinent credit information, as well as a facility for inserting digital signatures using Acrobat Reader. In addition to an overview of the electronic credit applications, this paper provides you a link to download the free electronic application template and provides instructions on how to create a digital signature using Acrobat Reader.

2 Processing the New Account The ultimate responsibility for the establishment of a new customer account rests with the credit department. It is therefore essential to set guidelines for performing the necessary procedure. The account must be precisely identified with its correct name and address. Additional identifiers may include a Social Security or government business identification number. for fast, accurate and easy identification. If new customer orders are to be prescreened for credit approval, it is necessary to describe, in a procedural document for the benefit of sales and credit personnel, the new account acceptance parameters. Necessary components of the new account application include: 1. Customer bill to name, street, city, state, zip 2. Customer ship to name, street, city, state, zip 3. Owners name (can be an individual, group or another company) 4. Telephone number 5. address 6. Legal characteristic -- sole ownership, partnership, corporation or other 7. Type of business -- example: distributor, retailer, wholesaler 8. Bank references: name, address, phone number, officer, type of account 9. Trade references: name, address, phone number 10. Year business started 11. Does the subject rent or own premises 12. Include a statement asking for sales and use tax exemption (resale certificate) to be mailed with the application 13. (For proprietorship) ask for the owner's Social Security # and a "signature/date block" asking their permission to order a personal credit bureau report 14. Request a blank copy of the customer's purchase order, front & back. (see "Customer Purchase Order" section). The Electronic Credit Application First impressions are important. Typically the first interaction a new customer has with your organization relates to the new account approval process. Therefore, your ability to quickly and efficiently respond to the customer s request for an open line of credit goes a long way in building a foundation for a long and prosperous business relationship. In the majority of states, digital signatures are now being recognized by our legal system. This, coupled with increased sophistication in Internet security, facilitates the use of an electronic credit application in today s business environment. Two elements that must be considered in credit decision making for the new account are time and costs. The practice of using an electronic credit application to gather critical decisioning data from the customer affords you the opportunity to respond to the customer s request for credit in as quickly as an hour, or less, particularly if an automated decisioning system is employed in the process. Costs associated with receiving an application are diminished considerably. The convenience factor for the customer in filling out and submitting the application via the Internet is also a major consideration. An electronic application can be structured to require that all fields are filled in prior to submission. This is something that can t be done with a paper application. With a complete application in hand, the analyst is positioned to make a quicker and more informed decision rather than having

3 to track down additional information required to fill in the blanks that might appear on the paper application. The sales rep is relieved of the responsibility of having to manage the new account application process. Additionally, information received on the account digitally can be stored digitally in an electronic file, thus relieving you of the burden of trying to manage paper files. The technology to process a request for credit has been in place for quite some time and is being used extensively in the world of B2C transactions. For a number of reasons, businesses doing business with business customers have been much slower to adopt the technology. In fact a survey conducted earlier this year pertaining to the use of online credit applications reveals that only 15% of businesses surveyed are actually employing the technology as a means to gather credit information on their B2B customers. A key reason why businesses have lagged behind in the adoption of the electronic credit application process in their B2B business activities relates to the fact that a typical business-tobusiness transaction represents a much larger dollar exposure and potential risk of loss. There is a sense that the potential for fraud in an online environment is greater and because since most states have their own set of laws pertaining to e-signatures, there is general insecurity over whether the customers e-signature on the application will stand a challenge in a particular state s court system. New Account Application Fraud While fraud is prevalent in the world of e-commerce, fraud is not limited to the Internet. It is important that the credit department use the same level of scrutiny on all requests for open lines of credit, whether electronic or paper based. If the request is made unsolicited, then one should consider sending the sales rep to the address on the credit application to confirm that the business is legitimate and the orders are valid. This practice also affords the sales rep the opportunity to establish an ongoing relationship with the new account customer. As is the case for all new account requests, the credit analyst should look for discrepancies amongst the tools employed in the decisioning process (i.e. the credit application, credit agency report, banking information, trade reference data, etc.). Things to look for include consistency in the name of the business and its principals names, coupled with consistency in address and phone numbers. The references on the application should be familiar to you. Consider the trade references: does their line of business coincide with that of the business applying for credit. If an ice cream shop is giving you a seafood wholesaler as a reference and your business sells fertilizer, then something should smell fishy. Different billing and shipping locations should also trigger a red flag. Digital Signatures The Electronic Signatures in Global and National Commerce Act was passed in This legislation controls the use of electronic signatures in conducting business on the Internet. The law prescribes the conditions necessary to make an electronic signature legally binding. It stipulates that electronic signatures are legal from the time the law was passed onward. It also prescribes that there is no legal difference between an electronic and a handwritten signature. Prior to the enactment of the E-sign Act of 2000, electronic signatures were being used, but when a dispute occurred, the signatures were not always recognized as legally binding in court situations since different states had different laws pertaining to e-signatures. Most states have now adopted the E-sign Act and accordingly are accepting digital signatures as legal. The federal

4 law also says that no state can favor a certain digital signature technology over another. This means a company that provides electronic signature capabilities cannot be mandated as the standard for a state or government entity. There are a number of software packages that can be used to create a valid digital signature. One example is Adobe Acrobat Reader, which can be downloaded to the PC free of charge. Using the software technology, a person can create a key that uniquely identifies that individual. The process of creating the key is relatively simple. Once established, the digital signature is affixed to the electronic document using the private key. The "signer" types in a password, similar to a personal identification number for an automatic teller machine. The private key then generates a long string of numbers and letters that represents the digital signature, or public key. The recipient of the message runs a software program using this public key to authenticate that the document was signed by the private key and that the document has not been altered during transmission. It is mathematically infeasible for a person to derive another person's private key. The only way to compromise a digital signature is to give another person access to the signature software and the password to the private key. We are in a world where paper is going away. Letters, books, documents, invoices and payments by paper check are all giving way to the digital age and digital files. How long the paper credit application prevails within your organization is heavily dependent upon your business model, your organizational culture and customer base. There is no doubt however that after serving us well for centuries the paper credit application will be going the way of the telegraph, phonograph, monochrome film, eight track tapes, etc. CRF has received numerous requests for information relative to electronic credit applications. Due to the significant interest expressed by CRF members, we have developed a credit application template which we are incorporating as part of this paper. The application template allows the user to collect much of the information that CRF believes to be critical in making an informed credit decision on a new account request. The following business credit application template, which was developed using an Adobe Acrobat program, can be modified with the relatively inexpensive Adobe Acrobat software to meet the specific needs your businesses. The following application is generic in nature and does not account for nuances that may be specific to the industry in which you do business. CRF offers no assurances as to the legality of this document. Prior to use we suggest that you have it modified to suit the needs of your organization and customer base, as well as having it reviewed by your legal department to assure that they are comfortable with its content. This application in PDF format can be sent via to a potential new customer or downloaded from a link on your organization s website. It can be accessed and manipulated with Adobe Acrobat Reader, which is readily available on the internet as free downloadable software. Digital signatures to be incorporated on the application are easily created using the Acrobat Reader software.

5 Instructions for Creating a Digital Signature Using Acrobat Reader (The following instructions explain how to create a digital signature using Acrobat Reader. You may cut and paste these to share with your customers.) Please find attached for your execution a Credit Application Click the attachment to open the form in Acrobat or Adobe Reader. When you are finished, click Submit button In the upper right hand corner to return your data to the form author. You may only set up a digital signature with Acrobat Reader 9 or above. To get the most recent Acrobat Reader (Free), click on: Adobe Acrobat Reader Download Note for Digital Signatures: If you have set up a digital signature in Acrobat or Acrobat Reader simply click in the appropriate digital signature sections and follow the instructions to affix your signature. If you have not yet set up a digital signature you may do so by following these instructions. Sensitive transactions between businesses generally require an ID from a certificate authority rather than a selfsigned one. 1. Do one of the following: In Acrobat, choose Tools > Sign & Certify > More Sign & Certify > Security Settings. In Reader, choose Edit > Protection > Security Settings. Note: If you don t see the Sign & Certify or Protection panel, see the instructions for adding panels at Task panes. 2. Select Digital IDs on the left, and then click the Add ID button. 3. Select the option A New Digital ID I Want To Create Now, and click Next. 4. Specify where to store the digital ID, and click Next. New PKCS#12 Digital ID File Stores the digital ID information in a file, which has the extension.pfx in Windows and.p12 in Mac OS. You can use the files interchangeably between operating systems. If you move a file from one operating system to another, Acrobat still recognizes it. Windows Certificate Store (Windows only) Stores the digital ID to a common location from where other Windows applications can also retrieve it. 5. Type a name, address, and other personal information for your digital ID. When you certify or sign a document, the name appears in the Signatures panel and in the Signature field. 6. (Optional) To use Unicode values for extended characters, select Enable Unicode Support, and then specify Unicode values in the appropriate boxes. 7. Choose an option from the Key Algorithm menu. The 2048-bit RSA option offers more security than 1024-bit RSA, but 1024-bit RSA is more universally compatible. 8. From the Use Digital ID For menu, choose whether you want to use the digital ID for signatures, data encryption, or both. 9. Type a password for the digital ID file. For each keystroke, the password strength meter evaluates your password and indicates the password strength using color patterns. Reconfirm your password. You can export and send your certificate file to contacts who can use it to validate your signature. Important: Make a backup copy of your digital ID file. If your digital ID file is lost or corrupted, or if you forget your password, you cannot use that profile to add signatures.

6 The Credit Application Following you will find an illustration of the CRF Electronic Credit Application. This is a generic application template developed using Adobe Acrobat Pro. Adobe Acrobat Pro is a relatively inexpensive software application that can be used to modify this document. Please be aware that this document is generic in nature and may not meet the legal or practical requirements necessary to conduct business within your industry. Prior to adopting this document for use, CRF strongly recommends that you have it reviewed by legal counsel. To download this electronic application free of charge in an interactive PDF format click on: CRF - Electronic Credit Application Download

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8 R ESOURCES Visit the Credit Research Foundation website for additional resources Copyright 2011 by the Credit Research Foundation. All rights in this paper are reserved. No part of the publication may be reproduced in any manner whatsoever without written permission. Printed in the United States of America Credit Research Foundation 1812 Baltimore Boulevard Suite H Westminster, MD U.S. $30.00