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welcomes at the five-minute legal master series we're expert attorneys help you master important legal topics today board-certified creditors rights attorney Nicholas D Kralik discusses credit agreements welcome today I want to talk to you a little bit about credit agreements you know in the euphoria of getting a new customer not many creditors especially their sales departments want to think about their customer becoming a debtor somewhere down the line however when a creditor extends credit to that new customer he's essentially lending his company's money and there is a risk that the creditor may not get paid by this customer therefore the outset of the business relationship with a new customer that is precisely the time to be proactive to anticipate what rights and remedies you as the credit grantor will want and need to have at your disposal if and when the new customer becomes a non-compliant debtor you've got to prepare for collection from day one and nobody likes to think about that there was a new customer but the creditor needs to create an environment where the customer is made clearly aware that the creditor expects timely payment this starts with the credit agreement the credit agreement must clearly set forth the payment terms and conditions if the new customers creditworthiness warrants it the creditor should require other creditor enhancements which we'll talk about a few moments the credit agreement should identify obviously the legal form of the customer is at a corporation or a proprietorship this will obviously identify who is responsible for payment creditors should periodically review the account and watch for possible changes in the legal form of the customer during the course of dealings for example as the Business Forum changed from a proprietorship or a partnership to a corporation or a limited liability company the credit agreements should also identify who at the customer is authorized to make purchases or encourage charges on the account I recommend adding a provision that puts the responsibility on the customer to notify the creditor of any such changes in that responsibility next set forth the credit and payment terms what is the credit limit how much credit are you willing to extend to this customer closely monitor the account balance to ensure does not exceed the level of credit risk that you as the creditor determined to undertake not every customer has the same credit history so not every customer should get the same credit terms and be clear about when payment is due encourage timely payment by offering discounts for early payment and identify what the consequences are of default you can reserve the right to unilaterally change the credit terms or even cut off credit if the account falls into arrears you can change the credit terms to Co D or cash in advance until the arrearage is cured and then go back to continue payment according to the original terms and of course make clear the legal consequences of default obviously a lawsuit the next question to ask yourself is what are the interest or finance charge terms after all that are whoo it doesn't pay you is using your company's money and the absence of an agreement with regard to interest the creditor is generally limited to an interest rate set by statute which in Pennsylvania is six percent per annum for interest rates or service charges in excess of a statutory rate contractual interest terms required and you can only recover your collection costs and attorneys fees when you sue a debtor if it's part of the contractual provision or there's a statutory authorization for attorneys fees so you want to put the attorney's fees provision in your credit agreement and make the debtor responsible for your attorneys fees if you have to proceed with suit if the credit applicant is borderline credit worthy consider these creditor enhancements that I mentioned earlier a personal guarantee from the principle of the corporate debtor or the principles of the corporate debtor may be include a confession-of-judgment clause which will allow you to confess an immediate judgment in the event that the debtor defaults on the account and you may seek a security agreement where the debtor grants the creditor a security interest in his assets and the lien of that security interest will uncover the debtors assets once that lien is perfected by the filing of the UCC one there's a lot to go into a credit agreement for excellent information about a responsible and disciplined credit policy of which a well drafted credit agreement is an integral part I would encourage you to visit the website wwlp.com to learn more about my colleague Bob Bernstein's get paid system and his book get paid a guide to getting paid faster and what to do if you don't thank you for listening this has been another installment of the five minute legal master series where expert attorneys help you master important legal topics for more information on this and other topics 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