What does a good credit policy look like?
A good credit policy ensures your products or services are more appealing to potential customers. However, granting credit always implies risks. How do you develop a balanced credit policy for your company? We list the do’s and don’ts for you.
Advantages of a credit policy
A credit policy delays payment for your customer, or breaks down the price into instalments on which the customer pays interest.
- A purchase becomes more attractive.
- It is easier for potential customers to justify a purchase.
The advantage for your company is that you sell more, but there is a greater risk of non-payment. A well thought-out credit policy limits the risks.
Pillars of your credit policy
The following elements largely determine the success of your credit policy:
- Credit period: within which period must your customer repay the amount?
- Credit standard: at what level of creditworthiness do your customers come into consideration for credit? Low requirements will boost sales, but increase the risk of late payments.
- Collection policy: how do you deal with late payments? A strict approach results in faster payments, but will drive annoyed customers to your competitors more easily.
Other points of attention for your policy
- Credit checks
Carry out credit checks: not only before granting credit, but also during the repayment period. Your customer’s financial situation can change quickly: regular checks will keep you one step ahead of payment difficulties.
- Monitor your accounts receivable
Keep your accounts receivable ledger up to date and take action if invoices are not paid on time.
- Keep the payment term as short as possible.
- Process the debtor invoices in your financial administration.
- Charge interest for overdue payment on unpaid invoices.
- Relationship with your debtor
Maintain a good relationship with your debtor: this makes it easier to discuss problems and increases the likelihood that he/she will pay on time.
Do not be too aggressive or passive in your credit policy: the right balance is crucial to collect payments on time and to maintain a good relationship with your customer.
- Clear communication
Avoid confusion by communicating clearly with your customer and the relevant departments within your company. Clear internal communication prevents sales staff from continuing to sell to defaulting customers, for example.
- Communicate clearly about your terms of payment to avoid disagreements.
- Save all communication between you and your customer so you have proof in case he/she doesn’t pay.
Ask our experts
Is your credit policy not yet up to speed?