Working Business Credit Policy

Use with Credit Limit Table

Also see an overview of:

Credit Policy

Credit Control

Debt Recovery

The purpose of a credit policy is to ensure that everyone within a company understands the working procedure of credit sales, and, of course, to exhibit financial control over a contentious subject. The following policy has not been written with any business/industry/country in particular, as such, it can only be used as information and not a strict guide: albeit useful information.

Date of Issue: 01 Jul 2003

Credit Policy for XYZ Company

This Credit Policy defines the Credit Business Aims and Procedures where credit is provided to our customers/clients.

Main Highlights

Monthly Overdue Figure: £73,980 or less

Days Outstanding: 45

Credit Cycle: 65 Days

Credit Controllers: 2 (each with responsibility of 92 accounts and £36,990 balances)

CREDIT BUSINESS AIMS

Credit is used to maximize sales opportunities where:

1. Credit terms and conditions have been approved for individual customers and all customer details are complete and logged:

Credit accounts are originated by application, using our standard Credit Application Form. All accounts are individually assessed using both of the following systems: Underwriting Credit Authorities and Credit Limit and Conditions. The customer details are then updated to our computer system. The originals of both the Credit Application Form and Terms and Conditions of Sale must be retained.

2. Cash flow and financing cost permit:

The ‘credit cycle’ of our business is approximately 65 days. This is the time from gaining the sale,

purchasing raw stock (+7),

production (+11 =18),

raising the invoice (+2 =20)

and receiving payment (+45 =65 days).

To adequately fund credit sales we require cash at bank equivalent to * 35 days of average purchases to ensure we do not use external funding. Our borrowing cost from the bank is 8% over bank base rate, currently 3.5%, a total of 11.5%.

*Credit cycle 65 days,

less allowance of credit period, being 30 days,

leaving 35 days.

3. The customer’s account is maintained within the authorised limits:

All credit customers have credit limits and repayment periods: no ‘standard’ terms exist. If the customer account has an outstanding invoice (i.e. over 30 days from any invoice date) no sales/services must be supplied without the authorisation of the Credit Manager.

4. The customer’s ability to pay and status has been checked within the past six months:

Orders can be taken for further sales when the customer’s current limit has been reached if the customer’s ability to pay has been checked within six months of the new order date.

Checking the ability and status of the customer involves a bank reference for a sum of not less than two months orders, and a current credit report. All customer details (company name, address, telephone/fax, contact, bank and accountant) must be confirmed; with all amendments updated on our system. The account must then be authorized using the Underwriting Credit Authorities system.

Article Index:

1 Introduction – Working Business Credit Policy 2 Procedure of Working Business Credit Policy