A credit control policy (often called a credit and collections policy in the US and Canada) is the written rulebook for how your business grants credit and gets paid. Without one, every decision depends on who is asking and how urgent the sale feels. With one, sales, finance and customers all know the rules, and your team can act quickly without asking permission every time. Here is what to include, and an outline you can fill in.
Why write it down
A written policy does three jobs. It sets out how much risk the business is willing to take. It makes decisions consistent, so two similar customers get similar treatment. And it gives your credit team cover: when a salesperson asks for an exception, the answer is in the policy, not in a personal judgment.
Keep it short. A policy of a few pages that people actually read is worth more than a long manual nobody opens. Put detailed procedures, such as reminder wording, in separate working documents that the policy refers to.
What to include
1. Purpose
One or two sentences on why the policy exists. For example: to support sales growth while keeping bad debt and overdue balances within agreed limits, and to treat customers fairly and consistently.
2. Scope
Say which parts of the business, customer types and transactions the policy covers. Note any exclusions, such as cash-only sales, intercompany balances or customers handled under a separate contract.
3. Roles and approval authority
Name the roles, not the people, so the policy survives staff changes. Typical roles are credit controller or AR specialist, credit manager, finance director or controller, and sales. Then set out who can approve what: new accounts, credit limits by band, changes to payment terms, holds and releases, payment plans and write-offs. A table works best here.
4. Credit application and checks
Set out what a new customer must provide (a signed credit application, legal entity details, trade references, financial statements above a certain limit) and what checks you will run, such as a credit report from a credit bureau or credit reference agency. Our guide on how to evaluate customer creditworthiness before extending credit covers the checks in detail.
5. Credit limits and terms
Explain how limits are calculated, who approves them and how often they are reviewed. State your standard payment terms and who may agree non-standard terms. See how to set credit limits for new customers for calculation methods you can write into this section.
6. Invoicing standards
Most payment delays start with an invoice the customer cannot approve. Set standards for timing (for example, invoice within one working day of delivery) and content (PO number, clear descriptions, correct billing entity and tax, due date and payment details).
7. Collection timeline
Set out the steps and their timing: reminders, calls, account holds and final notice. Base it on days relative to the due date so it works for any payment terms. Our article on payment reminder emails that get results has a sequence you can adapt.
8. Dispute handling
Define what counts as a dispute, who logs it, who owns resolution and the target time to resolve. State that undisputed amounts remain payable on the original terms.
9. Escalation and write-off rules
Explain when an account goes on hold, when it is referred to a collection agency or for legal action, and who decides. Set write-off thresholds and approvals, and say how you calculate your bad debt provision (the allowance for doubtful accounts, in US and Canadian terms). The tax and accounting treatment of bad debts differs between the UK, US and Canada, so confirm the details with a qualified adviser for your jurisdiction.
10. Review schedule
Say how often the policy is reviewed (annually is common), who owns it, and who signs off changes. Record the version and date on the document.
A fill-in-the-blanks outline
Copy this into a document and complete the brackets. Delete anything that does not apply.
[Company name] Credit Control Policy
Version [number], effective [date]. Owner: [role]. Approved by: [role].
1. Purpose. This policy sets out how [Company name] grants credit to customers and collects payment, so that we [support sales / limit bad debt to an agreed level / treat customers consistently].
2. Scope. It applies to all sales on credit made by [business units / countries]. It does not apply to [exclusions].
3. Roles and approvals.
- New accounts are approved by [role].
- Credit limits up to [amount] are approved by [role]; up to [amount] by [role]; above [amount] by [role].
- Non-standard payment terms are approved by [role].
- Releasing an account from hold is approved by [role].
- Write-offs up to [amount] are approved by [role]; above [amount] by [role].
4. Credit application and checks. New customers must complete a credit application and provide [documents]. We will obtain [credit report / trade references / financial statements for limits above amount] before granting credit.
5. Credit limits and terms. Limits are set using [method]. Standard terms are [number] days from [invoice date / end of month]. Limits are reviewed [after first number months, then every number months] and whenever [trigger events].
6. Invoicing. Invoices are issued within [number] working days of [delivery / completion] and include [PO number, description, tax details, due date, payment details].
7. Collection timeline.
- [Number] days before due: courtesy reminder.
- Due date: due-today reminder.
- [Number] days overdue: first overdue reminder and [phone call].
- [Number] days overdue: second reminder and call.
- [Number] days overdue: account placed on hold.
- [Number] days overdue: final notice.
8. Disputes. Disputes are logged by [role] within [number] working days of being raised and resolved within [number] working days where possible. Undisputed amounts remain due on the original terms.
9. Escalation and write-off. Accounts unpaid [number] days after final notice are referred to [collection agency / legal adviser] with approval from [role]. Debts are written off when [criteria], with approval as set out in section 3. The bad debt provision is reviewed [monthly / quarterly] using [method].
10. Review. This policy is reviewed [annually] by [role]. Changes are approved by [role].
Making the policy stick
Share the policy with sales as well as finance, and walk them through the parts that affect them: approvals, holds and non-standard terms. Put your standard terms on your credit application, quotes and invoices so customers see the same rules. Then follow the policy, including when the customer is large or the salesperson is persuasive. A policy that is quietly ignored is worse than none, because everyone learns that the rules are optional.
Key takeaways
- A credit control policy makes credit decisions consistent and gives your team authority to act.
- Cover purpose, scope, approvals, credit checks, limits and terms, invoicing, collections, disputes, escalation and write-offs, and review.
- Name roles rather than people, and set approval amounts in a clear table.
- Keep the policy short and put detailed procedures in separate documents.
- Review it at least once a year and apply it consistently, including to your largest customers.
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