Credit Policy Template [Customizable Sample]

What is a credit policy?

Credit policy is a set of guidelines that every organization follows to determine credit lines and payment terms for different customers. Credit policy guidelines defer from company to company and industry to industry depending on risk appetite, market practices, and growth stage of your business.

Documenting your credit policy guidelines is critical to ensure that your employees, especially those in the finance and sales teams, are on the same page about extending credit when onboarding a customer.

If you don’t have your credit risk policy documented yet, the credit policy template example provided here can prove to be a useful resource to help you get started. Even with a well-established credit policy document, you can use our template to check if you have covered all aspects, and update it as required.

Credit policy document

A credit policy document is a written record of your organization’s credit risk methodology and guidelines. It outlines the mission, goals, and responsibilities of your credit department. The document also includes the steps that you should take before extending credit lines to customers and prospects.

The credit policy document acts as the guiding principle for credit departments and sales teams on matters relating to credit lines, risk exposure, payment waive offs, etc.

5 Reasons you should have a written credit policy

Having a written credit policy has several advantages, which include:

1. Outlines mission and goals: The credit policy clearly outlines the target goals that your business intends to achieve with regard to metrics such as days sales outstanding (DSO), % of bad debt, etc. The policy document along with the AR dashboard helps employees and management teams track key metrics and ensure they are within the permissible range. 
2. Provides detailed information: The credit policy document provides detailed information about credit risk workflows such as credit scoring, credit review, and bad debt policy. This ensures that no information is missed when training new staff or resolving disputes between teams.
3. Minimizes credit risk: Often decisions around credit terms are taken based on personal opinions rather than using a standard procedure. This increases credit risk and the probability of bad debt. A written policy ensures that all needed steps are undertaken before a customer is offered credit or renewed credit terms.
4. Reduces friction between teams: Finance and sales teams may often not be on the same page with regard to credit terms, especially since their key performance indicators (KPIs) differ vastly. A written credit policy document ensures that all the teams are aware of the standard credit practices followed by your business. It also makes them aware of the flexibilities and limitations they have within their roles.
5. Helps train new employees: A written credit policy helps you train new employees (credit analysts, salespersons, etc.) easily. The new hires need not reach out to multiple persons to clarify information but can refer to the document for all the required details.

Download our credit policy template

Creating a credit policy document can be challenging. There are many sections that go into creating a well-defined credit policy.

If you want to create or update your credit policy document but are finding it difficult to get started or iron out any sections, our template can help you. The template outlines the broad sections that go into a credit policy document as well as has sample text filled in. You only need to customize it for the processes and methodologies that your business uses for credit risk management. The template uses { } to indicate some specific areas that you can look to customize.

Credit Risk Management Software

Credit risk management software helps automate credit scoring, approval workflows, real-time credit risk monitoring, and blocked order management. It helps you seamlessly implement your credit policy while reducing bad debt probability. Check out our affordable credit risk management software once you are ready to enforce your credit policy and improve the efficiency of your credit and sales teams.