Clear Credit Policies: Your First Line of Defense Against Bad Debt

When was the last time you reviewed your credit policy?

How can you make your policy more effective?

As businesses approach the busy Q4 season, strengthening accounts receivable (AR) shouldn’t wait—empowering your finance team with clear, written credit policies is the foundation for healthy cash flow and defenses against bad debt.

Inside Every Good Credit Policy: Limits, Terms & Consequences

A robust credit policy should be put into writing, and clearly spell out:

• Credit limits tailored to each customer’s risk profile and financial health.
• Payment terms, including due dates and incentives (e.g. early-pay discounts or penalties for late payment).
• Consequences for missed payments—such as stopping future orders, applying interest, or going to collections.

When Policies Are Vague or Missing: Risk Amplifies

Ambiguous or absent policies lead to these all-too-common pitfalls:

• Clients use inconsistent standards to push back payment, blaming unclear terms.
• Internal teams show favoritism—leading to inconsistent standards and confusion.
• Businesses can’t take swift action on overdue accounts when consequences are not documented. 

Benefits of Written Policies: Clarity, Consistency & Cash Flow

• Unified departments: Everyone—sales, finance, shipping, etc.—follows the same rules.
• Empowered enforcement: AR teams can confidently apply penalties when terms are violated.
• Reduced disputes: Clearly defined expectations help prevent misinterpretations and disagreements.
• Improved efficiency: Staff know exactly how to act—taking out guesswork reduces delays.

Remember to review your credit policy quarterly, and make tweaks to any areas that are lacking results or efficiency.

Overwhelmed by the number of debt collection companies?

Let us make the choice easy for you!

RSD is different from other debt collection companies because we offer consultation services to design, refine, and implement your credit policy. Of course, if you’re ready for a third party to step in with a delinquent account, RSD is always on call for you!

Contact our friendly experts at (248) 370-8160 or by submitting a contact form.