Finance Credit Policy Outline
This document outlines the credit policy of [Your Company Name]. It is designed to manage credit risk, improve cash flow, and ensure high-quality accounts receivable.
I. Objectives
To define the standards for extending credit to customers.
To establish procedures for evaluating the creditworthiness of customers.
To set out the terms and conditions of credit sales.
To outline the steps for collection in cases of overdue accounts.
II. Credit Evaluation and Approval
Credit Application: All new customers must complete a credit application form.
Credit Checks: Conduct credit checks using reputable credit agencies.
Approval Authority: Define who has the authority to approve credit and set credit limits.
III. Credit Limits
Setting Limits: Credit limits based on customer's creditworthiness, payment history, and purchase volume.
Review and Adjustment: Periodic review of credit limits to reflect any changes in the customer's financial status or payment patterns.
IV. Terms of Sale
Clearly define standard payment terms (e.g., net 30 days).
Encourage early payments with discounts where appropriate.
Clearly articulate the consequences of late payments, including interest charges and suspension of credit.
V. Collection Process
Routine Follow-up: Outline procedures for routine follow-up on outstanding invoices.
Overdue Accounts: Steps to be taken when accounts become overdue, including reminders, collection agencies' involvement, or legal action.
Account Suspension: Conditions under which credit privileges will be suspended.
VI. Documentation and Record Keeping
Maintain thorough records of all credit transactions, customer communications, and changes to customer credit status.
VII. Policy Review and Modification
Periodic review of the credit policy to adapt to changing market conditions, financial objectives, or business strategies.
VIII. Acceptance
All employees involved in credit management must acknowledge and adhere to these policies.
IX. Contact Information
For any questions or further clarification regarding the credit policy, please contact:
Finance Department
[Your Name and Designation]
[Contact Information]
