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Business Credit Questions and Answers

October 2006

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Q. Can a salesperson bind our company to unacceptable terms by signing the customer’s Purchase Order?  Our standard terms are net 30 and the salesperson signed a quote that said that we would get paid for the goods we supplied to a construction site when the general contractor [our customer] gets paid by the building owner.

A:  You did not mention what State you were selling to.  This link provides usury rates State by State. It is a free site:   I am not an attorney, so this is not legal advice.  I believe that if a salesperson’s title is such that the buyer can reasonably assume the salesperson has the authority to bind the company, then the Doctrine of Apparent Authority will create a binding agreement in the scenario you have described.

Q.  We are in a cash crunch and management wants me to offer a discount of 1% to our customers to encourage them to pay in 15 days.  Our standard terms are net 30 with no discount.  The terms I have been asked to ‘sell’ would be 1% 15 days, net 30 days.  What do you think?

A. In my opinion, a 1 percent discount is not likely to be a strong motivator for customers to pay in 15 days.  In my experience, a discount of 2 percent or more is often required to motivate customers.  In other words, a 2 percent discount is enough of an incentive that it becomes the tipping point in favor of customers taking advantage of a discount being offered for faster payment.  

Q.  Can I accept a stamped signature on a credit application or a personal guarantee?

A.  This is a great question.  I am not an attorney and I cannot answer your question authoritatively.  I have been told that anything that is intended as a signature is a signature. I encourage you discuss this question with your attorney . 

Q.  Are sales made to Indian casinos in California taxable?

A.  This is another great question.  According to the State Board of Equalization’s website, “Persons making sales for resale of tangible personal property to retailers conducting business on an Indian reservation should obtain resale certificates from their purchasers.”  For more information, please check the information available at no charge on this official state website: .

Q.  Can you explain an adverse opinion letter?

A.   An “adverse opinion” is issued by an independent auditor. An auditor issues an adverse opinion letter when it discovers information during the audit that demonstrates material noncompliance.

Q.  Can I accept a faxed copy of a personal guarantee?

A.  I think so. The federal Electronic Signatures in Global and National Commerce Act, known as the E-Sign Act permits the use of electronic signatures, contracts and records.  It seems to afford them the same validity as their handwritten and hard copy counterparts. This federal law provides that a signature or a contract shall not be denied legal effect or enforceability solely because it is in electronic form, and a contract relating to such transactions shall not be deemed invalid or unenforceable solely because an electronic signature or electronic record was used in its formation.

Q.  What exactly is a surety bond?

A.  As it is used in construction, a surety bond is an arrangement under which a surety company assures the building owner that the contractor will complete the contracted construction project and/or supply the capital equipment contracted for. The building owner sometimes requires the contractor to obtain a surety bond as a condition for awarding the contractor the contract.

Q.  What action should we take after placing a customer with a third party collection agency?  Should we also continue to pressure the debtor for payment?

A.  I recommend that once a debtor is placed for collection that you discontinue all collection efforts.  If the debtor contacts you, the most likely reason is that the debtor thinks cutting a deal with you will be easier than continuing to deal with the collection agency.

Q.  A customer contacted me to say they found they had missed taking a large number of unearned cash discounts over the last twelve months and were documenting the oversight and planned to take the deduction.  Assuming they are correct, do you have any suggestions?

A.  One idea would be to respond that you plan to audit all deductions the customer has taken in the last year and charge back and unearned cash discounts. This would include any invoice for which payment was not received in the discount time period irrespective of what grace period your company normally allows before charging back unearned cash discounts.

Q.  Can you provide more information about the Miller Act?

A.  Sure.  The Miller Act requires both performance and payment bonds. It provides protection to entities that provide material and labor to certain government construction related contracts since creditors cannot file a mechanic’s lien on most public projects.  If a supplier of labor or goods is not paid, it may bring a lawsuit against the payment bond for any amount remaining unpaid.  It is important to remember that notice must be given to the prime contractor within 90 days of the last date on which material or labor was furnished. Failing to file a timely notice normally voids a creditor’s right to file suit against a Miller Act Payment Bond which is one year from the date of the last furnishing of labor or materials. The surety company is not liable for fraud or negligence on the part of the general contractor. FYI, a creditor can find out if a Miller Act Payment Bond is required by contacting the Contracting Officer on the project.

Disclaimer: Nothing on our website is intended as legal advice, or tax or accounting advice. Nothing on this website should be considered an alternative to seeking professional legal or professional advice.  You are encouraged to use your judgment in deciding which of the ideas to accept or adopt, and which to reject and ignore.

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