How to control credit


  1. Identify what credit is normal for your industry, and decide what credit period - if any - you need to offer customers to be competitive.
  2. Consider ways of minimising credit risk such as offering discounts for payment with order, factoring your invoices, or accepting credit cards.
  3. Draw up a clear statement of your payment terms, and bring it to the attention of any customer applying for credit; include it on all order forms, invoices and other financial documentation.
  4. Terms should reserve your right to charge interest for late payments under the Late Payment of Commercial Debts (Interest) Act.
  5. Use a credit application form to collect customer details, including a named contact, bank account, and trade references.
  6. Assess the customer's creditworthiness - through a credit reference agency and trade references from genuine core suppliers - before granting credit.
  7. Restrict the credit limit to an amount you can afford to finance and, in the worst case, to write off; set low initial limits for new customers.
  8. Establish where to send invoices, what details the customer will require, and whether they have any regular invoice payment dates.
  9. Check outstanding credit balances when new orders are placed; be prepared to require cash payment if a customer exceeds their limit.
  10. Fulfil orders correctly and obtain proof of delivery; sort out any problems immediately.
  11. Invoice promptly and clearly; send monthly statements detailing outstanding invoices.
  12. Chase payments in a firm but friendly fashion as soon as they are due.
  13. Regularly review customers' payment records and outstanding balances; be prepared to stop offering further credit to bad payers.
  14. Monitor total credit outstanding in relation to turnover, and how quickly you are being paid, to check that your credit system is under control.

Cardinal rules


  1. establish payment terms before you start selling on credit
  2. set and enforce credit limits
  3. chase payments as soon as they become due


  1. provide credit without knowing your customer
  2. offer credit you can't afford
  3. be afraid to insist that customers meet their payment obligations
  4. continue extending credit to customers with poor payment records