Legal word of the week-[Credit]- Series by Alan M L Jones.

CREDIT

To start, here’s an example of incorrect use followed by the correct version

We have a huge amount of credit against Client A

Client A owes us a huge amount of money

Here are some examples of correct uses of the word

1 A credit (or loan) agreement

Under this sort of agreement a lender, often a bank, lends money to a borrower, the bank’s client

This is a loan and the borrower has to pay interest on the loan and repay the principal

Banks and other financial institutions operate in the credit markets People have written books on the credit markets and I’m not going to try to compete with them

2 To supply goods or services on credit

a) Credit of [30] days

The terms of business of a supplier / service – provider will often provide that the customer / client has to pay in full, say, 30 days after the date of supply or the invoice date. In this situation one gives and the other gets 30 days' credit

b) Extended credit

Some vendors will offer extended credit terms i.e. more than the 30 days - or whatever is customary in the market - mentioned in a)

They are also called deferred payment terms

When a prospective purchaser of expensive equipment is looking at possible suppliers the payment terms offered may be just as important as the equipment itself

Here are the key questions

i) How much money does the purchaser have to pay up front which could be on signing the contract or on delivery?

ii) Will the balance be paid in a lump sum or in a series of instalments and in both cases when does the purchaser have to make the payment or payments?

iii) Does interest accrue on the deferred portion and if so at what rate and when is it payable?

iv) What if any security does the vendor have if the purchaser fails to pay ?

Perhaps a reservation / retention of title clause, perhaps a third party guarantee or perhaps nothing

If nothing, the vendor is relying entirely on the credit of the purchaser i.e. it is taking a credit risk on the purchaser for the full amount outstanding

Answering these questions is part of the deal making process

c) At the other extreme, no credit is available, COD

What happens if you’re a new client or a client with a poor credit rating and the supplier / service-provider isn’t prepared to give / grant / extend credit?

i) Supplier will only supply goods in return for immediate payment

This is called Cash on delivery for which the acronym COD is used

ii) A service-provider such as a lawyer will ask the client to pay money on account before starting work

On account is short for something like on account of my fees as will be set out in my invoice

More colloquially, you'd say pay in advance or pay up front

3 To purchase goods or services on credit

In 2 we were looking at transactions where the two parties were acting in the course of business. However, many individuals / consumers use credit in their daily lives

They buy things on credit usually with credit cards or under other credit agreements such as car loans

4 Talking about the business of banking

You'll come across credit if you ever look at the "mechanics" of banking, things like how banks operate accounts for clients etc.

From the terms of business of a bank:

We will credit amounts received on behalf of customers immediately upon receipt unless they are received in a foreign currency in which case…..

We will pay interest on amounts standing to the credit of your account at a rate of X% p.a. Interest shall accrue on a daily basis and will be credited to your account monthly in arrears.

Opposites

to credit amounts - to debit amounts

in arrears - in advance

5 Praise

Everyone’s been giving me credit for finding the legal authority which enabled us to win the XYZ case but that’s not fair. It was Nichola who found it. All I did was mention it to my boss. So, to give credit where it’s due, well done Nichola

6 Creditable, creditworthy and credible – don’t confuse them

a) Creditable

This means worthy or deserving of credit - like Nichola in 5

You talk of creditable efforts and achievements – ones which are worthy of praise

b) Creditworthy / credit ratings

Is a person creditworthy? If so, a bank will lend that money money. If not, it won’t

Of course, it's not that simple. Some lenders will lend to people with poor credit ratings but at very high rates of interest

Whether somebody is creditworthy will often depend on their credit rating

Credit rating agencies investigate individuals and, in particular, their credit history– their record of borrowing money and more importantly repaying it; their job and income; whether they have ever been sued for unpaid debts etc

c) Credible

If somebody or something is credible, that person or it is believable / easy to believe

The opposite is incredible As you'll know, it's used much more commonly in its non-literal sense of "very good" / "amazing"

When considering whether somebody will make a good witness in court proceedings, a lawyer will consider whether the person is credible

If in a judgment a judge says that somebody was not a credible witness, the judge is being highly critical

It’s “judgespeak” for I didn’t believe your evidence

About Alan M L Jones

Qualified as a solicitor more than 35 years ago and has practised for many years mostly in London but also further afield in Amsterdam, Luxembourg and Tokyo. Alan has been both a lawyer and a communication / language teacher for years and used his experience to create the ACE Legal English online courses for non-native speaker lawyers. The courses are very engaging and relevant and are the first of their kind.