Credit Policy for businesses and how to extend credit and manage credit risk

One of the more common questions I am asked is what is a credit policy and how do I create one?  To make it easy I am going to give you the lowdown on the short and sweet Credit Policy that anyone can implement starting TODAY to take control of their money.

An example of a short and sweet credit policy could be:

1. Have every customer fill out a credit application
2. Check their credit and references
3. Decide if you want to extend credit to them or not
4. If you don’t extend credit, send them a letter advising them of this. (free examples of letters you can use can be found in “Become the Squeaky Wheel”
5. If you do extend credit, decide on a credit limit and send the customer a letter letting them know how much credit they have
6. FOLLOW UP on all accounts weekly
7. Send friendly reminders when accounts get over 30 days
8. Call customers who’s accounts hit 45 days
9. Put accounts on hold when they are over 60 days
10. Have a procedure in place on what to do if you receive a bad check.

As your business grows or as you run into different situation, you can add to your policy so that it is customized for you and how you want to handle your money.  Remember, it is up to you to decide how, when and where your customers pay you, if you don’t have a credit policy, you are letting your customers control your cash flow!