Introduce a Company Credit Policy

Even in a small business a Credit Policy should be drawn up to give consistency to processes and procedures. The policy should be communicated to all those involved with customer terms and payments including Sales so they can set the correct expectations with customers. An effective credit control policy should deal with at least the following areas:

• Mechanisms for approving credit for new customers.
• Mechanisms for determining credit ratings and terms for new customers.
• Procedures for taking action against customers where sums due are not paid.

Credit Control policies should also incorporate criteria to allow the business to determine:

• The conditions of sale to be issued to customers. Businesses may wish to devise different conditions of sale to be issued depending on the risk involved with offering the customer credit.
• Payment terms and conditions.
• Interest payable to be applied to accounts which become overdue.
• Details of any cash discounts.
• Details of assessing which credit ratings should apply to customers.
• Details of when accounts will be frozen and recovery action taken thereafter.
• Details of the stage at which legal action should be raised against the debtor.
• Whether or not credit data from external sources should be investigated and whether credit insurance should be taken out.