Helping Clients Set Credit Policies
A written credit policy turns ad hoc decisions into a repeatable system. It tells staff who gets credit, how much, and what happens when payment slips.
In this guide
- Explain why a written credit policy reduces bad debt
- Set practical limits and approval steps for new accounts
- Define a consistent escalation path for overdue accounts
- Keep the policy simple enough to actually be used
7 min
Why A Policy Beats Instinct
Without a policy, credit decisions get made on gut feel, often by whoever is closest to the sale. That leads to inconsistency: one customer is checked rigorously, another is extended generous terms because they seemed friendly. A written policy replaces instinct with a standard everyone follows.
The benefit is not bureaucracy for its own sake — it is fewer bad debts and faster, clearer decisions. When staff know the rules, they stop improvising, and the client stops discovering risky accounts only after they have gone bad. Consistency is the whole point.
Set Limits And Approvals
A good policy defines who can approve credit and up to what amount. Small limits might be approved by sales staff; larger ones should require a manager and a credit check. This stops a single enthusiastic salesperson from exposing the business to a large, unvetted debt.
Help the client tie limits to evidence — trading history, a credit check, or a deposit for new customers. Starting new accounts on modest limits and raising them as the customer proves reliable is a simple, effective way to control risk without blocking legitimate sales.
Define The Escalation Ladder
The most valuable part of a credit policy is what happens when an account goes overdue. Set out the steps clearly: a reminder at a set number of days, a phone call, a formal demand, then external recovery. Attach a timeframe to each step so nothing drifts.
A defined ladder removes hesitation. Staff no longer wonder whether it is 'too soon' to chase, because the policy already decided. It also signals to customers that the client is organised and serious, which on its own encourages prompter payment across the ledger.
Keep It Usable
A policy nobody reads achieves nothing. The best credit policies fit on a page or two, use plain language and live somewhere staff actually look. Resist the urge to make it exhaustive; a short policy that is followed beats a detailed one that gathers dust.
Review it once a year and adjust limits or steps as the business changes. When the escalation ladder reaches its final rung, your client can refer a debt for professional recovery, or start with a free debt appraisal to test whether the account is worth pursuing.
Key takeaways
- A written policy replaces inconsistent gut-feel decisions
- Tie credit limits to evidence and raise them as customers prove reliable
- A defined escalation ladder removes hesitation about chasing
- Keep the policy short enough that staff actually use it
Frequently asked questions
How long should a credit policy be?
Ideally one or two pages. A short, plain-language policy that staff follow is far more effective than a long one that is ignored.
Should every new customer be credit checked?
At least for accounts above a modest limit. Smaller exposures can start on tight terms or a deposit, with checks reserved for larger commitments.
What should the final step of the policy be?
Once internal steps are exhausted, the policy should point to external recovery, such as referring the debt or seeking a free appraisal of its prospects.
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