Before establishing a credit policy, nearly every company or business must take into account both sales and extended credit to third parties. The more lenient the company's credit terms, the greater its sales potential.
The main components of a sound credit policy are given below:
Credit limits
Specific credit amounts, extended based on customer creditworthiness.
Credit terms
Payment system for customer credit, including early payment options or advance payments.
Deposits
Rules and terms regarding customer deposits for goods and services provided on credit.
Customer information
Credit history to make informed decisions on extending credit.
Documentation
Storage of relevant documents, such as contracts and delivery receipts.
Credit analysis
Assessing factors that influence credit decisions to approve or disapprove credit transactions with customers.