Credit policy

In this article, you can read everything you need to know about credit policy and learn more about what a credit policy is and what you can use it for as a business.

What is a credit policy?

A credit policy is a company's overall framework and description of how a company relates to credit. This includes, but is not limited to: which customers can get credit, how much credit they can get, how long payment terms customers can get, etc.

The more detailed the credit policy, the tighter your accounts receivable management can be - also known as debtor management.

Credit policies are often used in larger companies and groups, and of course in banks, where credit policies are key. For example: Who can borrow? How much can they borrow? What interest rate can they borrow at, etc.

However, we recommend that all companies have a credit policy - regardless of size. A good credit policy ensures good guidelines for how salespeople, among others, should act towards customers when it comes to credit.

Example of a credit policy

There is no legally founded and approved framework for what a credit policy should and must look like - it's basically up to the company itself.

But an example of a credit policy could be:

• A description of the person responsible for the policy
• How much credit can new customers from Denmark get?
• How much credit can new customers from abroad get?
• How much credit can existing customers get after 1-2 years of cooperation?
• How much credit can existing customers get after 3-10 years of cooperation?
• Are there certain industries that are not allowed to get credit?
• Are there certain industries that are allowed to get more credit?
• Do customers need to be credit rated if they buy x amount of money?
• The above example shows that there are almost inexhaustible ways in which a credit policy can provide guidance. But in general, the more detailed the credit policy is based on customers, segments, industries, customer relationships, etc. the greater the chance of minimizing losses.

Why create a credit policy?

Basically, you use the credit policy to minimize your loss on debtors.

In other words, the credit policy is a central piece of any good debtor management and thus a form of control over your debtors.

The credit policy is not a guarantee that the bank or company will not lose money on debtors, but it is a way to reduce losses - or at least to have made an active effort to ensure that this does not happen.

How often should you review your policy?

The credit policy should reflect the company's activities. If the company has many activities and many different debtors, it may be beneficial to update your credit policy more regularly than if the company has few activities and few debtors.

In practice, no credit policy is perfect, and often there will be a need to adapt and adjust a credit policy as the need arises.

For example, if a company has no foreign customers, few have written anything about foreign customers in their credit policy - even though it could be a good idea. In practice, it will often only be added when the need arises - or when a foreign customer has defaulted.

Qatchr helps you manage your accounts receivable

If you're looking for advice and guidance on a credit policy, Qatchr can help.

Qatchr is used by hundreds of companies as an active player in their credit policies.

With Qatchr, you can run credit checks and credit reports on Danish companies and private individuals and thus help minimize losses on debtors.

Qatchr gives you recommendations for credit and payment terms based on customer data. This means you don't get a generic credit and payment policy, but a dynamic policy adapted to the customer's circumstances. You can also see if your customers are registered as bad payers in the Debtor List.