Accounts Receivable Credit Policy Sample and How to Use It

An accounts receivable credit policy is a written set of rules that defines which customers receive credit, how much credit they receive, on what payment terms, who approves it, and what happens when invoices are paid late. It gives sales, credit, and collections teams one standard to follow, so credit decisions are consistent and defensible.

What Is an Accounts Receivable Credit Policy?

An accounts receivable credit policy is the document that governs how a company extends and manages customer credit. It sets the criteria for approving new customers, the information required in a credit application, the method for setting credit limits, standard payment terms, the collection process for overdue invoices, and the rules for credit holds and write-offs.

The policy connects credit decisions made before a sale with collection actions taken after it. Without one, credit limits are set inconsistently, sales teams negotiate terms case by case, and collectors have no agreed point at which to escalate.

Why Every B2B Seller Needs a Credit Policy

A credit policy reduces bad debt, speeds up collections, and removes guesswork from credit decisions. It protects the company from extending large amounts of credit to customers who cannot pay, and it gives collectors and sales teams a shared rule set when a customer pays late.

It also supports audit and control requirements. Approval thresholds and documented credit decisions are among the accounts receivable internal controls that auditors expect to see.

Key Sections of a Credit Policy

A complete accounts receivable credit policy usually includes ten sections: purpose and scope, roles and responsibilities, credit application requirements, credit evaluation, credit limits and approval authority, payment terms, credit reviews, collection procedures, credit holds, and write-offs. The sample below follows that structure.

Sample Accounts Receivable Credit Policy

Adapt the sample below to your company's risk appetite, industry, and approval structure. Replace items in square brackets.

1. Purpose and Scope

This policy sets the rules for extending credit to customers of [Company Name] and for managing and collecting the resulting accounts receivable. It applies to all sales made on credit terms by all business units and sales channels.

2. Roles and Responsibilities

3. Credit Application Requirements

Every new customer requesting credit must submit a signed credit application including:

Customers requesting more than [$ Amount] must also provide recent financial statements.

4. Credit Evaluation

The Credit Manager will evaluate each application using credit bureau reports, trade and bank references, financial statements where provided, and the customer's payment history with [Company Name] if applicable. Each customer will receive a credit risk score that informs the approved limit and terms.

5. Credit Limits and Approval Authority

Credit limits are set based on the customer's risk score, expected purchase volume, and financial strength. Approval authority is as follows:

Requests for a new or higher limit follow the same approval levels. Orders that would take a customer over its approved limit require approval before release.

6. Payment Terms

Standard payment terms are net [30] days from the invoice date. Alternative terms, including early payment discounts, longer terms, or cash in advance, require Credit Manager approval and must be documented in the customer record. High-risk customers may be required to pay in advance or provide a guarantee. Consistent payment terms make due dates and reminders predictable for both sides.

7. Credit Reviews

Existing customers will be reviewed:

8. Collection Procedures

Overdue invoices will be followed up according to this schedule:

Disputed invoices will be logged with an owner and resolved separately. Collection reminders on the disputed amount will pause while the undisputed balance remains due.

9. Credit Holds

Accounts may be placed on credit hold when invoices are more than [60] days past due, the customer exceeds its credit limit without approval, or a payment plan is broken. New orders on hold accounts require Credit Manager approval to release.

10. Write-Offs

Balances will be written off only after the collection steps in Section 8 are complete and there is evidence that collection is unlikely, such as bankruptcy or a failed third-party referral. Write-offs require approval as follows:

Policy Review

This policy will be reviewed annually by the Credit Manager and Controller, and updated when market conditions, customer risk, or company strategy change significantly.

Setting Credit Limits That Hold Up

Credit limits work best when they are based on a consistent formula rather than individual judgment. Common inputs include the customer's expected monthly purchases multiplied by the payment terms, adjusted for risk score, financial strength, and payment history. Many companies start new customers with a lower limit and raise it after several months of on-time payment.

Credit data from bureaus such as Dun & Bradstreet helps evaluate customers that have no payment history with you. For some large or concentrated customers, approved limits from accounts receivable insurance can also guide how much credit to extend.

Making the Policy Work in Practice

A credit policy only works if it is applied consistently. The most effective steps are building approval thresholds into the system, so orders above a limit cannot be released without sign-off, sharing approved limits and terms with sales, tracking broken promises and disputes against each customer, and reporting policy exceptions to management every month.

Collection steps in Section 8 are easier to follow when reminders run automatically. Automated dunning sends reminders on schedule and pauses them for disputed invoices, while the AR aging report shows which accounts are reaching the review and credit hold thresholds.

In Quick Receivable, credit management captures credit applications inside Salesforce, links each one to a credit risk scorecard with a 0 to 100 score, and tracks requests for new or higher credit limits. Score history shows whether a customer's risk is improving or worsening before the next credit review.

Common Credit Policy Mistakes

The most common credit policy mistakes are approving credit without a complete application, letting sales teams set limits or terms on their own, never reviewing limits after approval, applying collection steps inconsistently, and writing off balances without documented collection efforts or approval. Each one weakens the policy and increases bad debt.

A final mistake is writing a policy and never updating it. Customer risk, industry conditions, and the company's own appetite for risk change over time, and the policy should change with them.

Frequently Asked Questions