What a small business credit policy should say
What to put in a written credit policy: who qualifies, terms and limits, discounts, how overdue accounts are chased, and how the books can enforce it.
By Achekam · · 4 min read · For Running a business businesses in South Africa, Nigeria, Kenya
Most small businesses grant credit by habit. A good customer asks to pay at month-end, it seems rude to refuse, and soon half the customer list is on account with no agreed limit, no written terms and nobody sure who is supposed to chase. Then one large customer stops paying, and the business discovers that its biggest risk was never written down anywhere.
A credit policy fixes that. It does not need to be long. It needs to say who gets credit, on what terms, up to what amount, and what happens when they pay late, and then the business needs to follow it.
What credit control is for
Investopedia defines credit control, also called credit policy or credit management, as managing the credit a business extends to customers so that it increases sales while keeping exposure to bad debts low. Both halves matter. A policy so strict that nobody qualifies costs you sales; a policy so loose that everyone qualifies costs you cash.
Investopedia adds that credit control involves deciding who qualifies for credit, assessing creditworthiness, and setting policies that balance sales growth with financial stability.
ACCA makes a point owners often miss: good credit control starts before anything is overdue. It begins with screening who gets credit, agreeing the terms (credit limit, credit period, discounts and interest) in advance, issuing accurate invoices quickly, and then collecting overdue accounts systematically, fairly and within the law. ACCA notes that customers generally will not pay until they receive the invoice, so a slow invoice is a slow payment.
The four parts every policy covers
Investopedia names four main factors of a credit policy. Each becomes a section of your written policy.
Credit period
How long customers have to pay. State it in days from the invoice date, and say whether it differs by customer type. Achekam's invoices default to 30-day terms.
Cash discounts
Whether you offer a discount for paying early, how much and within what time. If you offer none, say so, so that customers do not deduct one anyway.
Credit standards
Who qualifies. A short list works: a completed credit application, trade references or a bank reference, proof of registration, and a named person responsible for paying. Decide who in your business approves a new account and its limit.
Collection policy
What happens, and when, once an invoice is late. For example: a reminder after the first week, a call after the second, a statement and a hold on further orders after a month, and a final letter before the matter is handed over. Agree in advance whether you charge interest on overdue accounts, and check what the law in your country allows before you do.
Restrictive, moderate or liberal
Investopedia describes three levels of credit policy. A restrictive policy grants credit only to customers with a strong credit history. A liberal policy extends credit to most customers, which it calls a high-risk strategy. A moderate policy sits between the two.
There is no correct level for every business. A wholesaler supplying established retailers may run a moderate policy; a contractor whose customers are new companies may need a restrictive one; a business with high margins and strong demand may accept a liberal policy for a time. Whatever you choose, write down why, and review it when your customer mix or cash position changes.
Setting terms, limits and holds in Achekam
In Achekam, issuing a customer invoice takes the next number in its sequence and posts it to the ledger as debtors, sales and output VAT. Receivables are then aged into 0-30, 31-60, 61-90, 91-120 and over 120 days, with overdue totals, so the policy's collection steps have a list to work from.
For businesses selling to trade customers, the Wholesale add-on keeps price lists with quantity breaks and trade customers with credit limits, terms and a hold. At the till, a sale charged to a trade customer's account writes a receivables invoice and checks the account's hold and credit limit, unless a supervisor or manager overrides it with a reason. That is your credit policy enforced at the point of sale, with every exception recorded against a name.
Automatic reminders and statements
Credit control in Achekam is switched on for new workspaces. Once a day it e-mails overdue reminders and a monthly statement to customers with a balance. By default, reminders go at 7, 14 and 30 days overdue with the invoice PDF attached. It never charges anyone, and it records whether each e-mail went out. It needs working e-mail settings to send.
Separately, a customer statement of account can be produced as a PDF and e-mailed, and the screen says whether it was sent. When a customer says they never received anything, you can see what was sent and when.
Align the reminder days with your written collection policy, so the e-mails customers receive say the same thing your policy does.
Writing it down and telling customers
A policy no customer has seen cannot be enforced. A short routine:
- Put the policy on one page: credit period, discounts, standards, limits, collection steps and interest, if any.
- Attach the key terms to your credit application form, and have the customer sign it.
- Print the payment terms on every invoice.
- Review limits for your largest accounts at least once a year, using their payment history.
- Measure how quickly customers actually pay; our article on days sales outstanding shows how.
Industry examples help: see dealer price lists and credit for manufacturers and patient account statements.
Next step
Investopedia's article on credit control and the factors of a credit policy explains the four factors and the three policy levels in more depth. Draft your one-page policy this week, show it to your accountant, and send it to your existing account customers with their next statement.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
