Credit Policy Essentials
A written credit policy turns ad-hoc decisions into a consistent, defensible process — and is the foundation of a healthy debtors ledger.
What you'll learn
- What a credit policy is and why informal rules fail
- The core sections every credit policy should contain
- How to set approval limits and escalation triggers
- How to keep the policy enforced as you grow
6 min read
Why a written policy beats gut feel
When credit decisions live in one person's head, they are inconsistent, hard to defend, and impossible to scale. A salesperson keen to close approves terms the business cannot afford; a long-standing customer gets the benefit of the doubt long after the warning signs appear.
A written credit policy removes the emotion. It states, in plain terms, who can approve credit, on what evidence, and what happens when an account falls behind. Everyone applies the same rules, so customers are treated fairly and your exposure stays inside limits you actually chose. It also gives new staff a reference instead of a guess, and gives you something concrete to point to when a customer pushes for terms you would rather not grant.
What to include
A practical credit policy covers:
- who can approve credit, and up to what limit;
- the information required before credit is granted;
- standard payment terms and any approved exceptions;
- the follow-up cadence for overdue accounts;
- when an account is placed on stop or referred for recovery.
Keep it short enough that people actually read it. One to three pages is plenty for most SMEs. The goal is a tool your team uses weekly, not a manual that sits unread in a shared drive.
Approval limits and escalation
Tie approval authority to dollar limits. A junior account manager might approve up to a modest figure on standard terms; anything larger, or any non-standard terms, escalates to the owner or finance manager. Document the trigger for each step so nobody has to interrupt their day to ask "can I approve this?"
The same logic applies to overdue accounts. Set a clear point — say, 30 days past due, or a fixed dollar threshold — at which an account stops shipping and another at which it is referred externally. Escalation that is written down happens; escalation that depends on someone "getting around to it" does not.
Keeping it enforced
A policy only works if it is applied. Build the checks into your invoicing and order workflow so a sale cannot proceed past a limit without sign-off. Review the policy at least annually, and after any large bad debt, to see what slipped through and why.
If an account does fall behind despite the controls, escalate promptly rather than letting it age. Merion recovers overdue commercial debts on a commission-only basis with no upfront fee — see refer a debt when an account is beyond polite reminders. This is general information, not legal advice.
Key takeaways
- A written credit policy makes decisions consistent and defensible.
- Define approval limits, required information, and escalation triggers.
- Keep it short enough that your team actually uses it.
- Review the policy annually and after any significant bad debt.
Frequently asked questions
Does a small business really need a credit policy?
Yes — even a one-page policy prevents the inconsistent, emotional decisions that create bad debts.
How often should I review it?
At least annually, and whenever your customer mix or economic conditions change materially.
Who should own the credit policy?
Whoever approves credit — often the owner in a small business, or the credit controller as you grow.
Knowledge is good. Getting paid is better.
Merion's team recovers what you're owed — commission-only, no upfront fee.