An Ultimate Guide to Write an Effective Business Credit Policy
The following is a guest post by Daniela MckVicker, a blogger for Top Writers Review .
Considering offering credit to your customers? A credit policy is a document that you need. It outlines the conditions of credit sales, giving your customers one more way to make orders. For your business, it helps encourage new sales and manage associated risks.
If you need help with writing a business credit policy, consider these guidelines. What Is a Credit Policy?
A credit policy is a document that defines credit and payment terms for customers and policies to mitigate risk from extending credit to those who can’t meet their obligations. These guidelines are critical for businesses selling their products and services in credit.
When broken down into essential parts, a credit policy includes: Evaluation of a customer’s creditworthiness
Decision process to extend credit to customers (terms, conditions, etc.)
Credit limits for customers
Methods of dealing with delinquent accounts
A sound credit policy minimizes the risk of not receiving funds from sales made on credit. So, writing this policy requires knowledge of a company’s financial capabilities, applicable laws, and risks involved. Before Writing: Credit Policy Do’s and Don’ts
If you’re writing a new draft or updating the current credit policy, keep these tips in mind: Don’t keep it confidential. Everyone in your company should know how you’re going to manage credit sales.
Don’t make the policy so strict, so you have opportunities to adjust the credit decision-making process later.
Don’t make the policy too broad and/or open to interpretation. This might cause conflicting interpretations by department members or other stakeholders.
Do make credit approval limits clear for those with authority to grant credits. Do include procedures to reduce credit risks and sales where customers are unable to pay off the debt. Do include guidelines on keeping company and customer information private. Do state that any unlawful or unethical behavior within the credit department is strictly prohibited. How to Write an Effective Business Credit Policy Let’s go over each important section in business credit policies. 1. Explain the Purpose of the Policy The first section of a business’s credit policy is dedicated to the conditions, responsibilities, and rights of the credit department. Describe how it works and helps to meet the goals you’re trying to achieve as an organization.For example: “The credit department is responsible for establishing payment terms for the company’s customers and monitoring these terms to ensure compliance. The present credit policy describes alternative payment methods to customers.” Treat this section as an introduction that you’ll later use to teach employees. Save the specifics for the subsequent parts – there’s plenty of space for that. 2. List the Roles and Responsibilities of Credit Department Members Explain the duties of each member who works in the credit department. By doing so, you’re defining their roles and letting them know what’s expected of them.Here are some common credit department positions, along with brief descriptions: Chief Financial Officer (CFO). Responsible for managing the entire […]
