Set up a client credit policy

When to run this

Run this play with a client who extends credit to other businesses but decides each account on instinct. The tell-tale signs are familiar: every new customer is treated as a one-off, the owner approves limits from memory, and overdue accounts are handled differently depending on who is chasing and how the week is going. The result is uneven risk and a debtor ledger nobody fully controls.

A credit policy is most valuable before a client takes on growth, a large new account, or a season of heavy quoting. It is also a natural conversation at year-end review, when the ageing report is in front of both of you and the cost of inconsistency is visible in black and white.

The play (steps)

Keep the document short — one page beats a manual nobody reads. Work through these decisions with the client and write the answers down:

1. Who qualifies for credit. Decide whether new customers start on prepayment or proof-of-funds terms and what must happen before credit is granted.
2. What checks are required. Set the level of due diligence — a credit check, trade references, an ABN and entity check — and at what dollar level each kicks in.
3. How limits are set. Agree a method for setting an opening limit and a process for reviewing it.
4. Standard terms. Confirm the default payment terms and the security the business takes, such as a signed credit application, a personal guarantee, or a PPSR registration where relevant.
5. What happens when an account is late. Define the steps and timing — reminder, statement, stop-supply, demand, referral — so collections is a process, not a mood.
6. Who owns the decision. Name the person who can approve credit and the person who escalates an overdue account.

What good looks like

A good policy fits on a single page and answers every routine credit question without the owner being involved. New accounts follow the same path every time; limits have a reason behind them; and overdue accounts trigger a known sequence rather than a debate. The business can show the policy to a new staff member and have them apply it the same week.

Crucially, the policy is used, not filed. If a client tells you they have a credit policy but cannot find it, treat that as no policy at all and rebuild it as something simple enough to live by.

What to say to the client

Frame it as control, not bureaucracy. A useful line: “A credit policy is just deciding, once and calmly, the things you currently decide twenty times a year under pressure. It protects your cashflow and it takes the awkwardness out of saying no.” Position yourself as the person who drafts the first version with them, so it gets done rather than added to a someday list.

If the conversation surfaces debts that are already overdue, you can point the client to a free, no-obligation look at where things stand with a free debt appraisal while you put the policy in place for the future.

Common mistakes

The most common error is making the policy too long and too aspirational, so it never gets used. The second is writing it but never assigning ownership, which leaves every decision back on the owner's desk. The third is treating the policy as fixed: a policy that is never reviewed against the actual ageing report slowly drifts away from reality. Build in a quarterly look so the policy stays honest.