Fine Print in a Corporate Credit Accounts Contract

While a corporate credit account is managed somewhat differently than a personal line of credit, the two have the pitfalls of fine print in common, among other things. Before you submit an application for a corporate credit account, study the document closely, and make sure that you understand everything that it includes, or you may be in for some ugly surprises later.

Understand Your Credit Account

Just as you need to understand the fine print on any other legal document, a corporate credit account requires you to spend a little time going over the fine print. Typically, the account services company will have clauses that concern major aspects of the account, including how disputes and liabilities are determined, conditions that will allow the company to increase the rates they charge, and other potential problems, such as a universal default clause. It is up to you to understand all of this information before you agree to a contract, or you may find out that you have agreed to some expensive conditions.

Disputes and Liabilities

Beware of agreeing to binding arbitration by account services company mediators. What this means, in simple terms, is that you agree to let the company decide the outcome of disputes, and to designate when and how you are responsible for litigation or other liabilities. While arbitration is expected to a certain degree, make sure that you have the freedom to appeal unfavorable decisions or negotiate disputes in some other manner.

Rates and Profitability

Another key aspect of the fine print of a credit account contract is the annual percentage rate the company charges. Beware of initial rates that have numerous fees for minor technicalities. Some credit account companies effectively charge a higher APR by attaching fees or monthly charges to boost the costs involved. If the rates you are charged are too high, it will have a negative impact on the long-term profits of the company, so understand the rates completely before committing the company to a contract.

Beware the Universal Default

Avoid credit card issuers which make use of a universal default. While the term may sound innocent, it is actually a way of saying that the company reserves the right to increase your rates if you are 30 days late in paying any credit accounts at all, not just the ones offered by that company. The universal default is a trap that people or companies with multiple credit lines can fall into, being pushed progressively farther away from budget by ever-increasing fees as credit companies play leap-frog with your overdue accounts.

Managing Corporate Credit

Make sure that the credit accounts you open are reporting to Paydex, the corporate version of credit scoring, managed by Dun & Bradstreet. Pay attention to the frequency of reporting, and how disputes in the Paydex reports are handled. Companies that do not file reports with Paydex are not helping the credit standing of your company. For those, shop around for a company willing to transfer the balance, and then cancel the account once it reaches a zero balance.