Credit Approval Policy
Most bad debts are decided the day you grant credit — a credit approval policy is where prevention starts.
What's included
- What to check before extending credit to a new account
- How to set credit limits that match risk
- Who approves credit at each value band
- How to document a credit decision
- When to review or withdraw an existing limit
7 min read
Why approval comes first
The cheapest bad debt is the one you never take on. A credit approval policy puts a consistent gate in front of every new account, so credit is granted on checks and limits rather than on a handshake and optimism. Done well it barely slows good customers while quietly screening out the accounts most likely to default. This template covers commercial credit across QLD, VIC, NSW and the ACT — adapt the checks and thresholds to your trade and review them before you rely on them.
The credit approval policy
- 1. Application
- Every new account requesting credit completes a credit application capturing the legal entity, ABN/ACN and trade references.
- 2. Identity
- Verify the legal entity and ABN/ACN, and confirm who is authorised to incur the debt.
- 3. Checks
- For limits above $[amount], obtain a credit report and/or trade references before approving.
- 4. Limits
- Set an initial limit proportional to expected trade and verified standing; new accounts start conservative.
- 5. Authority
- Limits up to $[amount] approved by [role]; above that, by the owner.
- 6. Terms
- Approved terms, limit and any security or guarantee are recorded and communicated in writing.
- 7. Review
- Limits are reviewed periodically and after any payment default.
How to use it
Make the credit application a normal part of onboarding, not an awkward afterthought — a customer who balks at basic checks is itself useful information. Match the depth of checking to the size of the limit so small accounts are not over-burdened while large exposures get real scrutiny. Record the decision, the limit and any guarantee in writing, and start new accounts conservatively; a limit is far easier to raise on good behaviour than to claw back after a default. Feed approvals into your new customer due diligence checklist, and have a referral path ready via refer a debt for the accounts that slip through.
Review the limits you grant
A credit limit set at onboarding is a starting point, not a permanent fact. Review limits periodically and immediately after any payment default, raising them for customers who have earned trust and trimming them for those who have not. Tie this review to the same evidence you use for write-offs and provisioning, so the front and back of your credit process tell a consistent story. The accounts that keep needing exceptions are the ones to watch.
Tips
- The cheapest bad debt is the one you never take on.
- Match the depth of checking to the size of the limit.
- Start new accounts conservatively and raise on good behaviour.
- Review limits periodically and after any default.
FAQ
Do I need a credit report for every customer?
Not usually — reserve formal checks for larger limits, and lean on trade references and ABN verification for smaller ones.
Should I ask for a personal guarantee?
It is common for higher-risk or higher-limit commercial accounts — if you do, record it clearly in writing.
How high should a new customer's first limit be?
Conservative — set it to the trade you genuinely expect, and raise it once the account has shown a clean payment history.
Templates are a head start — not legal advice
Customise to your business and have important documents reviewed. Need to recover a debt? We can help.