How can a credit policy help?

The only surefire way to avoid collection hassles is to collect in full at the time of sale. If you would like to extend credit, you can prevent many potential delinquencies by establishing an effective credit policy. A good credit policy spells out the agreement between your company and the customer. It is your job to make sure the customer understands and agrees to your policy at the time of the sale.

An important part of any credit policy is to identify the risk level of a customer - both good and bad credit risk levels. Identifying bad credit risk prospects or customers allows you to limit or avoid potential accounts receivable problems and bad debt. Identifying good credit risk prospects and customers could identify opportunities where you can afford to offer better pricing or terms - enabling you to win business which you otherwise may have lost to competitors.

Your credit policy should be easy for your customers to understand and simple for you to manage. It should help you identify good and bad credit risks up front and protect both you and your customers from miscommunications. Used consistently, a well-conceived credit policy helps you win good customers and avoid the time, cost and frustration of handling late paying customers.