Credit Control and Collections Policy Template

Credit Control and Collections Policy: [Entity name]

Policy for business-to-business trade credit: credit applications and limits, payment terms, invoicing, dunning, disputes, holds, collection agencies, write-off, and the link between collections data and the expected credit loss allowance under IFRS 9 (simplified approach) or FASB ASC Topic 326 (CECL, including the practical expedient in ASU 2025-05). Late payment law is shown with dated EU, UK and US examples. Replace every [bracketed] value and every row marked Example. This is a documentation format, not legal, accounting or financial advice: check the current official text and a qualified professional.

Document control

Approvals

Revision history

1. Purpose, scope and principles

This policy sets how [Entity name] grants trade credit to business customers, collects what it is owed, and records losses. It applies to every sale on credit by the entities listed in Document control.

Principles:

1. Credit is a sales enabler with a limit, not an entitlement. Every account on credit has an approved limit and approved terms.
2. Terms are written into the contract or order confirmation and on every invoice. Nobody grants extended terms verbally.
3. Collection actions are polite, documented and lawful. Collection staff never threaten action the entity does not intend or is not entitled to take.
4. Disputes are resolved on their facts and fast; undisputed amounts are collected while a dispute is open.
5. Allowance and write-off decisions use the same data as the collections process, so the balance sheet reflects what the team actually expects to collect.

Out of scope: [consumer sales, intercompany balances, lease receivables, loans to employees].

2. Roles and responsibilities

3. Credit application and customer assessment

Before any credit sale, the credit controller completes the customer file:

• Verified legal entity name, registration number and registered address (from the official company register of the country).
• Signed credit application accepting the standard terms of sale.
• Trade and bank references or a credit reference agency report.
• Latest filed accounts, or management accounts for young companies.
• Sanctions and restricted-party screening result (see compliance/sanctions-compliance-procedure).
• Proposed annual volume and peak exposure from the account owner.

Risk score bands:

4. Credit limits and approval authority

Limit sizing: peak exposure equals average monthly sales times (terms in days plus expected late days) divided by 30, plus the largest expected single order.

Limits are reviewed at least annually, on any payment over [30] days late, and on any credit agency alert. An order that would push the balance above the limit is held until approved by the next level.

5. Payment terms and invoicing

Standard terms: [30] days from invoice date, [Entity name] standard terms of sale [version]. Longer terms need written approval at the level for the account's limit and must stay within the legal limits below.

Invoices are issued within [one] working day of delivery, show the purchase order number, due date, bank details and the late payment clause, and are sent to the customer's nominated accounts payable address. Bank detail changes are announced only by signed letter and confirmed by phone, never by email alone.

Late payment law, dated examples (check the current official text):

6. Dunning and collection steps

Payment plans are agreed in writing, with dates and amounts, and approved at the level for the outstanding balance. A broken plan restarts the calendar at CC-05.

7. Disputes, credit notes and deductions

Only the disputed lines are put on hold; undisputed lines stay in the dunning calendar. Credit notes need approval at the level for their value, and a reason code. Unauthorised customer deductions are logged as disputes, never written off silently.

8. Monitoring and key metrics

Example: receivables GBP 1,850,000 at 2027-03-31 and 12-month credit sales GBP 14,600,000 give DSO of 1,850,000 / 14,600,000 x 365 = 46.25 days, against a target of 45 days.

9. Allowance for credit losses and write-off

IFRS reporters apply the simplified approach to trade receivables and contract assets without a significant financing component (IFRS 9 para. 5.5.15), measuring lifetime expected credit losses, commonly with a provision matrix by ageing bucket (IFRS 9 para. B5.5.35). US GAAP reporters apply ASC 326-20. ASU 2025-05 (issued July 2025) adds a practical expedient for current receivables and contract assets arising from ASC 606 transactions: an entity may assume current conditions at the balance sheet date do not change for the remaining life of the asset; entities other than public business entities may also elect to consider collections after the balance sheet date. It is effective for annual periods beginning after 2025-12-15, with early adoption permitted; check the ASU for transition.

Provision matrix, Example at 2027-03-31 (GBP):

Loss rates come from [36] months of historical write-offs by bucket, adjusted for current and forward-looking conditions in the ECL methodology (finance/ecl-methodology).

Write-off: a balance is written off when there is no reasonable expectation of recovery, for example after insolvency of the customer, agency return as uncollectable, or cost of action above the balance. Write-off approval follows section 4 thresholds. Written-off balances stay on a recovery list; amounts recovered are credited to the allowance or to profit or loss as the framework requires.

10. Controls and records

Records are kept for [the statutory retention period, for example 6 years in the UK].

11. Glossary and references

Standard and licence note

Based on Directive 2011/7/EU, the UK Late Payment of Commercial Debts (Interest) Act 1998, IFRS 9 and FASB ASC Topic 326 as amended by ASU 2025-05, cited by name, article and paragraph only. Accounting standards are not reproduced; obtain the official text from the IFRS Foundation and the FASB. Laws and proposals change: check the current consolidated text and the status of pending legislation before use. Quillmere Industrial Supplies, Harwold Fabrication and all figures are fictional. The text is original and is not legal, accounting or financial advice. Template licence: MIT.