You should never underestimate the power of a strong credit policy. Business operations depend on cash flow, which depends on customers’ reliability to pay invoices. You should base your credit policy on numerous factors, including how well it suits your business needs, and know when you should review your policy.

Risk strategies versus organizational needs

If your vendors offer net-30 pricing and you offer customers net-45 pricing, there may be significant gaps in your cash flow downgrading your credit rating.

Risk is also a concern for every business leader. You may feel confident extending a large credit line to some customers while limiting available spending for others.1 You should develop a baseline credit score requirement to minimize your risks while meeting your customers’ needs.

Setting criteria and reviewing outcomes

Once you establish criteria to guide your company credit decisions, assess your policy success. By reviewing policy outcomes, you can determine whether you’re losing clients because your criteria is too stringent or if you have overdue accounts because your criteria is too lenient.

Keep an open mind and get buy-in

Keep in mind everyone across your company must understand the risk strategy you adopt. This means your accounts receivable department employees, salespeople, and credit managers at every level should support and advocate for your policy. This is the only way to ensure they give every customer and potential customer the same information about your credit policies.

Once developed, you should evaluate your policy to ensure it’s working well for credit managers and everyone else involved. If salespeople feel the policy is too restrictive, it could hamper business.2 If the accounts receivable team is having difficulty collecting on accounts, they may need you to consider other terms. There’s a great deal of value in asking for input from those who your company credit policy directly impacts.

A strong credit policy is imperative to your long-term company success. It’s not enough to adopt a policy and expect everyone to follow the terms. It’s vital you get your team and customers on the same page — and adapt if your policies aren’t working.

Having trouble striking the perfect balance between strictness and leniency in your credit policy? Your commercial credit management partner can offer unique insights to help you streamline your credit application process and improve your cash flow. Contact the experts at Mountain States Commercial Credit Management today at 800-457-8244 or send a request through our website to learn more about how we can help.

1 U.S. Small Business Administration. “Extending Credit to Your Customers.” Accessed February 1. 2017. Source.

2 ConvergePoint. “5 Steps to Ensure Compliance with Policies and Procedures.” Accessed February 1, 2017. Source.