Comprehensive policy template to establish professional credit terms, collection procedures, and compliance guidelines. Customize for your business and start protecting cash flow today.
This comprehensive template provides the foundation for establishing clear credit and collections procedures in your organization. Each section is customizable to match your business requirements, industry standards, and local regulations.
Customization Guide:
Replace bracketed values [LIKE_THIS] with your specific terms. Review with legal counsel to ensure compliance with your jurisdiction's regulations.
1.1 Credit Application Requirements All customers requesting credit terms must: • Complete a formal credit application • Provide three trade references • Submit current financial statements (if credit limit exceeds $[AMOUNT]) • Authorize credit checks and background verification • Sign personal guarantee (if applicable) 1.2 Credit Limits • Initial credit limit: $[AMOUNT] for new customers • Credit limit reviews conducted quarterly • Increases require management approval and satisfactory payment history • Credit holds applied when limit is exceeded 1.3 Payment Terms Standard payment terms are: • Net [30] days from invoice date • 2/10 Net 30 available for qualified accounts • Progress billing for projects exceeding $[AMOUNT] • Prepayment required for high-risk accounts 1.4 Credit Hold Triggers Accounts will be placed on credit hold for: • Payments [60] days past due • Exceeding credit limit by [20]% • Returned payments or NSF checks • Material adverse change in financial condition • Bankruptcy filing or similar proceedings
2.1 Invoice Generation • Invoices issued upon shipment/service completion • Electronic invoicing via email (primary method) • Paper invoices available upon request • All invoices include payment terms and due date 2.2 Invoice Contents Each invoice must contain: • Invoice number and date • Customer name and billing address • Description of goods/services • Unit prices and quantities • Payment terms and due date • Remittance instructions • Contact information for billing inquiries 2.3 Invoice Disputes • Disputes must be reported within [15] days of invoice date • Written documentation required for all disputes • Disputed amounts may be withheld pending resolution • Undisputed portions must be paid per original terms • Resolution target: [10] business days from dispute notification 2.4 Statement of Account • Monthly statements sent to all active accounts • Statements show aging of outstanding invoices • Electronic delivery standard, paper upon request
3.1 Collection Timeline Days Past Due | Action 0-5 days | Automated payment reminder 15 days | First collection email/call 30 days | Second collection notice + account review 45 days | Final notice + credit hold 60 days | Demand letter + service suspension 90 days | Collection agency/legal action consideration 3.2 Collection Communications • All collection efforts documented in customer file • Professional tone maintained in all communications • Multiple contact methods utilized (email, phone, mail) • Escalation to management for key accounts 3.3 Payment Plans • Available for accounts experiencing temporary hardship • Requires written agreement and management approval • Maximum term: [6] months • Down payment: minimum [25]% of outstanding balance • Default on plan triggers immediate acceleration 3.4 Collection Costs Customer is responsible for: • Late payment fees as per agreement • Collection agency fees ([35]% of amount collected) • Legal fees and court costs • Interest on past due amounts at [1.5]% per month
4.1 Late Payment Fees • Applied to invoices [10] days past due • Late fee: [2]% of invoice amount or $[40], whichever is greater • Maximum late fee per invoice: $[500] • Compounded monthly on unpaid balances 4.2 Interest Charges • Interest rate: [1.5]% per month ([18]% annually) • Applied to all amounts [30] days past due • Calculated daily, charged monthly • Interest continues to accrue until paid in full 4.3 Fee Waivers Fee waivers may be considered for: • First-time late payment (once per 12 months) • Long-standing customers with excellent history • Documented extenuating circumstances • Requires management approval and documentation
5.1 Dispute Process • Customer submits written dispute with documentation • Acknowledgment within [2] business days • Investigation completed within [10] business days • Written resolution provided to customer • Escalation path clearly defined 5.2 Dispute Documentation Required documentation includes: • Invoice number(s) in dispute • Specific reason for dispute • Supporting documentation (POD, emails, contracts) • Proposed resolution • Customer contact information 5.3 Resolution Options • Credit memo for verified errors • Replacement goods/services if applicable • Payment plan for partial disputes • Negotiated settlement for complex issues • Third-party mediation if necessary
6.1 Write-off Criteria Accounts may be written off when: • Collection efforts exhausted (minimum 12 months) • Cost of collection exceeds debt amount • Customer bankruptcy with no recovery expected • Debt older than [3] years • Management approval required for all write-offs 6.2 Write-off Procedures • Detailed documentation of collection efforts • Final attempt letter sent • Management review and approval • Accounting adjustment processed • Customer marked as "no credit" in system 6.3 Recovery of Written-off Accounts • Payments on written-off accounts applied to oldest debt first • Full payment required to restore credit privileges • Credit approval process must be repeated • Previous write-off noted in credit evaluation
7.1 Sales Team • Initial credit application collection • Communication of payment terms to customers • Assistance with dispute resolution • Notification of customer financial changes 7.2 Accounts Receivable Team • Invoice generation and delivery • Payment processing and application • First-level collection activities • Account reconciliation • Reporting and aging analysis 7.3 Collections Team • Advanced collection activities • Payment plan negotiations • Legal action coordination • Collection agency management • Skip tracing and asset searches 7.4 Management • Credit limit approval above thresholds • Write-off authorization • Policy exceptions and waivers • Escalated dispute resolution • Collection strategy oversight
8.1 Regulatory Compliance This policy complies with: • Fair Debt Collection Practices Act (FDCPA) • State collection laws and regulations • Consumer protection requirements • Industry-specific regulations • International collection laws (if applicable) 8.2 Documentation Requirements • All collection activities documented • Customer communications retained for [7] years • Payment records maintained per legal requirements • Dispute documentation preserved • Regular compliance audits conducted 8.3 Prohibited Practices The following are strictly prohibited: • Harassment or abuse of customers • False or misleading representations • Unfair collection practices • Contacting customers at unreasonable times • Discussing debt with unauthorized third parties • Threats of violence or criminal prosecution
Adapt the template to your business needs. Set appropriate payment terms, credit limits, and collection timelines. Review with legal counsel for compliance.
Ensure all relevant staff understand the policy. Conduct training sessions for sales, accounting, and collections teams. Document role-specific responsibilities.
Track policy effectiveness through KPIs like DSO and collection rates. Review quarterly and adjust based on results and changing business needs.
Days Sales Outstanding target
Collection Effectiveness Index
Average Days Delinquent
Write-off percentage target
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