What are the policies and procedures for credit and collection?

What are the policies and procedures for credit and collection?

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important criteria for granting credit to customers

If you’re an employer active in a particular industry, many people will tell you that you have no choice but to provide your clients with goods on credit. They’ll tell you that it’s essential to the success of your work, just as oxygen is necessary for breathing. In fact, they are quite right, but that is not an absolute rule for every job, especially for small enterprises and enterprises with a relatively small customer base.

So don’t fall into the trap of thinking that you have to give credit just because others do it. As you will see in this article, there are criteria and conditions for granting credit to clients and policies and procedures governing collection, without which trying to collect money from those who do not pay you will become a waste of time, expensive, and very frustrating.

What are the policies and procedures for credit and collection? What are the conditions for providing credit and collection policies? All that and more will be answered in this article.

Factors to be considered in a decision to extend credit to your clients

Monitoring the state of industry: It is important to know the extent to which your industry is affected by economic, political, and social conditions. If your industry is in a recession or decline, the risk of granting credit to customers may be higher; therefore, you must analyze trends, expectations, and competitors in your industry before deciding whether to grant credit.

Know your clients: It is also important to check the reliability and financial capacity of clients who wish to be granted credit. Use different sources to obtain information on the payment record, financial behavior, and customer reputation, and therefore you can determine the level of credit, repayment period, and discount terms for each customer based on your assessment.

Measurement of the volume of your financial transactions: The volume of sales, profits, and costs associated with making transactions on credit must also be calculated. If the volume of your transactions is relatively small, it may not be worth the risk of adding an administrative and financial burden to the management of your credit accounts. If the volume of transactions is large, it may require guarantees or insurance to protect itself from the risk of a significant loss in the event of non-payment of debts.

Assess your financial situation: Finally, you should look at your current financial situation and your ability to implement credit, collection, and financial risk policies and procedures. If you have high liquidity, sufficient capital, and a good growth rate, you may be able to give credit to your customers more generously and competitively. If you have low liquidity, high debt, and slow business growth, you may need to restrict your credit policy or look for alternative sources of financing.

General criteria for granting credit to clients

The client’s reputation: the credibility, confidence, and discipline of the client in dealing with credit lenders. The client’s reputation includes factors such as payment history, financial behavior, business reputation, and obligations with others. The client’s reputation helps to assess his or her willingness and ability to pay debts on time.

Customer’s ability to pay: The extent to which the customer is able to generate sufficient income and adequate liquidity to cover the costs and obligations associated with credit. The customer’s ability to pay includes factors such as sales volume, profits, cash flows, capital, and financial ratios. The customer’s ability to pay helps determine the appropriate size, terms, and credit guarantees.

Guarantees provided to the customer: the availability of any assets, guarantees, or guarantees that can be used as an incentive or guarantee to repay the credit in the event of any emergency or default on payment. Guarantees provided to the customer include factors such as the type, value, ease of collection, and liquidation of assets.

General economic situation: The general economic situation includes factors such as the level of inflation, interest rates, exchange rates, economic growth, political stability, and legal arrangements. The general economic situation helps identify opportunities, threats, and challenges to customer activity and their impact on the ability to pay.

Conditions for granting credit

Credit period: The period given to the customer by the supplier for payment of the value of the goods or service purchased on credit. The credit period varies depending on the type of commodity or service, the nature of the market, competition, and the relationship between the supplier and the client.

Cash discount: a percentage of the invoice value provided by the supplier to the client as an incentive to pay in a shorter period than the specified credit period. The cash discount helps the supplier speed up the collection of its receivables, reduce the risk of non-payment of debts, and help the customer save part of the cost of its purchase and increase its profitability.

Approved collection policy: It is a set of procedures and methods followed by the supplier to ensure that his dues are paid by his customers on time. Credit and collection policies and procedures include sending invoices, notifications, and reminders to customers of the due dates of their payments, contacting them by phone or in person to ensure that they receive invoices and encourage them to pay, negotiating with them in the event of any problems, disputes, or difficulties in payment, and taking appropriate legal action in the event of a delay or deliberate default in payment.

Monitoring a company’s credit policy: It is an ongoing process of measuring and evaluating the performance and effectiveness of a company’s credit policy on its customers. This process aims to determine the extent to which the desired objectives of the credit policy have been achieved, identify the strengths and weaknesses in its implementation, and propose the necessary improvements and adjustments to increase its efficiency and effectiveness. This process uses different indicators to measure the performance of a credit policy, such as the ratio of forward sales to total sales, the average credit period, the ratio of non-performing debt to total debt, and the ratio of administrative costs of credit to total costs.

General Collection Policies

Delivery of invoices issued to the collection department in the specified period: This step is aimed at ensuring that invoices reach the collection department as soon as possible so that it can prepare the collection plan and follow up with clients on the policies and procedures for credit and collection.

Delivery of customer forward account settlements to the collection department: This is done to ensure that the collection department receives all documents and data related to customers’ forward accounts, such as contract data, terms, discounts, and guarantees. It also helps determine the status of each account and the procedures required to collect it.

Daily collection reports must be submitted to the collection officer: This step is intended to ensure that the collection officer receives periodic reports on the activity of the collection department, such as the number and value of collected, residual, overdue, and doubtful invoices. It also helps in monitoring the performance of the collection department and evaluating its effectiveness and efficiency.

Customer pro-payment documents must be sent to the collection department: This step ensures that the collection department receives all supporting payment documents from customers, such as collection vouchers, receivables, bank checks, or bank transfers. It also helps to confirm the validity and legitimacy of the collection process and reduce the risk of embezzlement or forgery.

Delivery of daily collection movement reports to the collector: This step is aimed at ensuring that the collector receives periodic reports on the collection movements of each collector, such as the number and value of visits, communications, and invoices received and not collected; monitoring, stimulating, and providing feedback and guidance to the collectors.

Delivery of invoices and notices to clients by collectors: This step is aimed at ensuring that customers receive invoices and notifications of their future accounts by collectors, such as maturity, delay, or reminder notices, and clarifies the rights and obligations of customers and suppliers.

Delivery of Customer Forward Invoices and Collateral to Collectors: This ensures that collectors receive customer forward invoices and associated collateral, such as guarantees, post-dated checks, or commercial papers. It also helps to determine the status of each invoice and the procedures required for its collection.

Collection of invoices and supply of value: This step is aimed at ensuring that collectors receive invoices from clients in agreed modalities, such as cash, checks, or financial transfers. It also helps to ensure that the collection value is delivered to the collection section or to the supplier’s account at the bank as soon as possible.

Receipt and delivery of collection bond books to collectors: to ensure that collectors receive collection bond books from the collection section and use them to periodically record client collection, audit, and audit.


In conclusion, providing credit to customers is a strategic decision that requires taking into account many important factors. By assessing the customer’s reputation, ability to pay, and guarantees provided, companies and institutions can apply credit and collection policies and procedures, making informed decisions about granting credit.

To facilitate collection procedures, Qoyod has customized its services to make it easier for its customers in the best way. So, what are you waiting for? Try Qoyod now for free for 14 days and start your journey towards improving financial management.


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