A written credit policy manual is a roadmap for managing a credit and collections department. It includes strategies for implementing accounts receivables procedures, standards for evaluating creditworthiness, extending credit and collecting on past due bills. The benefits of having a written manual lie in having a set of objective credit standards that aid in decision making and in reducing inherent risks.

Review Consumer Credit Laws

Review federal and state consumer credit laws that apply to your business. Make sure you understand all applicable laws before getting started. The Federal Trade Commission Bureau of Consumer Protection Business Center site has free information pertaining to credit, debt collection, payments and billing. State consumer agency Web sites also have free consumer credit information. Contact a legal expert to get answers to any questions you may have or to get expert assistance in writing the credit policy manual.

Introduction

Explain the purpose and goals of the credit policy in the introduction of the manual. Credit policy goals identify whether the business is taking a conservative, moderate or liberal approach to granting credit. Goals can, for example, include Days Sales Outstanding (DSO), define an acceptable percentage of receivables by aging and set a target goal for the credit decision-making process. Next, introduce members of the credit management team. Identify the duties, responsibilities and authorities associated with the role each team member plays.

Credit Management Section

Outline procedures pertaining to the customer side of credit. Indicate how customers are to apply for credit, such as by filling out a paper or online credit application. Identify how the credit department will evaluate a credit application and where credit history reports will come from. Include an explanation as to how an initial credit line will be determined and identify the team role – such as the credit manager or assistant manager – in charge of setting the limit. Outline standard credit terms, billing procedures and if applicable, the process a customer will follow to request an increase in his credit limit.

Collection Management Section

Collection management policies outline actions the credit department will take to collect past due bills. Collection procedures should set standards of conduct for employees involved in collection efforts. Procedures should be specific with regard to when collection actions begin, how they will take place and include an escalation plan in the event the customer doesn’t pay. For example, the credit department may choose to mail a past due notice to a customer with a bill 15 days past the due date and start making collection calls if the bill ages to 30 days past due. For severely delinquent accounts, a payment arrangement can be offered, the bill can be sent to a third party collection agency or the business can start legal action against the past due customer.