Credit Policy vs. Written Credit Procedures
By By Michael C. Dennis and Steven Kozack

Understanding the difference

Question: I have been asked to write a Credit Policy [in contrast to credit procedures]. Any suggestions?

Answer. A Credit Policy is a general statement describing the types of activities the department will take. A Credit Policy usually defines reporting relationships, and functions as a guide for determining how various problems should be addressed. A sample Credit Policy is shown below:

The credit department reports to the CFO. Its primary goal is to help the company to maximize sales and profits while maintaining a sound and collectable accounts receivable base. The credit department is also responsible for maintaining customer goodwill during the collection process, and for keeping sales and senior management informed about emerging problems including uncollectable accounts, and order holds.

The credit department will operate with integrity. Members of the credit department staff will not defame customers, reveal confidential information, or collude or conspire with others in violation of applicable antitrust laws.

The credit department will look for ways to make sales safely rather than for excuses not to extend credit to customers. The credit department will have the final authority in granting credit and the credit manager will be accountable for bad debt losses and account delinquencies if and when these become a concern to the company.

Discussions and correspondence with customers will be dignified and professional...irrespective of what customers may say or do. Processes will be implemented that permit the maximum number of orders to flow from sales to fulfillment without having to be routed to the credit department for review and approval. The credit department will keep the sales department informed about problem accounts, and whenever possible the sales department will be given advanced notice about possible credit holds.