# 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.

<!--
Guidance: How to use this template
- Purpose: one approved rule set for who gets credit, on what terms,
  how overdue balances are chased, when an account is stopped, and when
  a balance is written off, so that sales, credit control and the
  controller act the same way and the allowance can be traced to data.
- Scope: trade receivables from business customers. Consumer credit,
  lending and debt purchased from others need separate legal review.
- Fill section 1 and the authority table in section 4 first; everything
  else hangs off them.
- The worked example uses the fictional Quillmere Industrial Supplies
  Ltd (UK parent, EU subsidiary, IFRS reporter). Every number is
  recomputed and marked *Example*.
- Related templates: Working Capital Review (`finance/working-capital-review`),
  ECL Methodology (`finance/ecl-methodology`), Delegation of Authority
  Matrix (`finance/delegation-of-authority-matrix`), Account
  Reconciliation (`finance/account-reconciliation`), Month-End Close
  Checklist (`finance/month-end-close-checklist`), Revenue Recognition
  Memo (`finance/revenue-recognition-memo`).
-->

## Document control

<!-- Guidance: Name the policy owner (usually the credit manager or financial controller) and the approver of the policy itself, normally the CFO or the audit committee. -->

| Field | Value |
|---|---|
| Document ID | [POL-CC-NNN] *Example:* POL-CC-001 |
| Version | [1.0] |
| Status | [Draft / In review / Approved] |
| Owner | [@credit-manager] |
| Approvers/reviewers | [@cfo], [@financial-controller], [@head-of-sales], [@legal] |
| Entities in scope | [Legal entities] *Example:* Quillmere Industrial Supplies Ltd (UK), Quillmere Supplies BV (Netherlands) |
| Reporting framework | [IFRS 9 / ASC 326] *Example:* IFRS 9 |
| Effective date | YYYY-MM-DD |
| Last updated | YYYY-MM-DD |
| Next review | YYYY-MM-DD (at least annually, and after any change in late payment law) |
| Classification | [Internal] |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| Policy owner | [@name] | [Prepared] | YYYY-MM-DD |
| Financial controller | [@name] | [Reviewed] | YYYY-MM-DD |
| CFO | [@name] | [Approved] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change summary |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [@name] | First draft |
| 1.0 | YYYY-MM-DD | [@name] | *Example:* Approved, aligned with ASU 2025-05 review and UK payment terms bill watch item |

## 1. Purpose, scope and principles

<!-- Guidance: State what the policy protects (cash, margin, customer relationships) and what it does not cover. Pitfall: a policy that only covers dunning and ignores credit approval, which is where most bad debt starts. -->

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

<!-- Guidance: Separate the person who sells from the person who approves credit and the person who writes off. Pitfall: sales managers approving their own customers' limits. -->

| Role | Responsibilities |
|---|---|
| Credit manager | Owns this policy, approves limits within authority, runs the dunning calendar, chairs the monthly overdue review |
| Credit controllers | Open accounts, monitor limits, contact customers, log promises to pay and disputes |
| Sales account owners | Collect customer documents, help resolve disputes, never change terms without approval |
| Customer service and operations | Log and fix delivery, quality and pricing disputes within the target times in section 7 |
| Financial controller | Reviews allowance and write-offs, signs the monthly receivables reconciliation |
| CFO | Approves limits and write-offs above the credit manager's authority, approves this policy |
| Legal or external counsel | Reviews legal letters, proceedings and insolvency claims |

## 3. Credit application and customer assessment

<!-- Guidance: List the minimum file for a new credit customer and how risk is scored. Pitfall: opening an account on a trading name without verifying the legal entity, which makes later recovery hard. -->

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:

| Band | Description | Default terms | Default security |
|---|---|---|---|
| A | Strong filed accounts, clean payment history, low agency risk score | Standard terms | None |
| B | Adequate financials, minor late payments | Standard terms, lower limit | None or credit insurance |
| C | Weak or no financials, new company, adverse references | Shorter terms or partial prepayment | Guarantee, deposit or letter of credit |
| D | Insolvency indicators, sanctions concern, refused references | Cash with order only | Not applicable |

## 4. Credit limits and approval authority

<!-- Guidance: Tie the limit to expected peak exposure (orders in transit plus open invoices), not to annual sales. Align the thresholds with the Delegation of Authority Matrix. -->

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.

| Limit requested | Band A or B approver | Band C approver |
|---|---|---|
| Up to [GBP 25,000] | Credit controller | Credit manager |
| [GBP 25,001 to 150,000] | Credit manager | Financial controller |
| Above [GBP 150,000] | Financial controller | CFO |

| Customer | Band | Avg monthly sales | Terms | Expected late days | Largest order | Limit approved |
|---|---|---|---|---|---|---|
| *Example:* Harwold Fabrication Ltd (fictional) | B | GBP 40,000 | 30 days | 10 | GBP 12,000 | GBP 65,000 (40,000 x 40 / 30 = 53,333, plus 12,000 = 65,333, rounded down to the nearest 5,000) |

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

<!-- Guidance: State the standard terms and the legal ceiling for each jurisdiction where you sell. Pitfall: agreeing terms longer than the law allows, which can make the clause unenforceable. -->

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):

| Jurisdiction | Instrument | Key points as of 2026-10-30 |
|---|---|---|
| EU | Directive 2011/7/EU on combating late payment in commercial transactions, as transposed nationally | B2B payment period of 60 days unless expressly agreed otherwise and not grossly unfair to the creditor (Art. 3); public authorities generally 30 days, up to 60 in limited cases (Art. 4); statutory interest at the reference rate plus at least 8 percentage points (Art. 2 and 3); fixed compensation of at least EUR 40 for recovery costs (Art. 6); grossly unfair terms are unenforceable (Art. 7). A Commission proposal for a regulation to replace the directive (COM(2023) 533, procedure 2023/0323/COD) had not been adopted as of 2026-10-30: it stalled in Council and its withdrawal has been discussed; check its status on EUR-Lex |
| UK | Late Payment of Commercial Debts (Interest) Act 1998 and the 2002 Regulations | Statutory simple interest at 8 percentage points above the Bank of England base rate fixed on 30 June or 31 December; fixed sums of GBP 40, 70 or 100 depending on debt size. A government bill introduced in May 2026 proposes a 60-day cap on most B2B payment terms; check Parliament for its current stage and commencement |
| US | No general federal B2B late payment statute; state contract law and the agreed terms apply. Federal agencies pay under the Prompt Payment Act (31 U.S.C. 3901 to 3907) | Collection of consumer debts falls under the Fair Debt Collection Practices Act and is out of scope of this policy |

## 6. Dunning and collection steps

<!-- Guidance: A calendar keyed to days past due, with the channel and the owner of each step. Pitfall: stopping supply without warning, which escalates disputes and can breach the contract. -->

```mermaid
flowchart LR
  A["Invoice issued"] --> B["Day -5: pre-due reminder"]
  B --> C{"Paid by due date?"}
  C -- "Yes" --> Z["Closed"]
  C -- "No" --> D["Day +3: reminder and call"]
  D --> E["Day +15: second reminder, interest notice"]
  E --> F["Day +30: account on stop, manager call"]
  F --> G["Day +45: final demand"]
  G --> H{"Paid or plan agreed?"}
  H -- "Yes" --> Z
  H -- "No" --> I["Day +60: agency or legal referral"]
  I --> J["Write-off review (section 9)"]
```

| Step | Days past due | Action | Owner |
|---|---|---|---|
| CC-01 | -5 | Courtesy statement for invoices above [GBP 5,000] | Credit controller |
| CC-02 | +3 | Reminder email and call, log promise to pay | Credit controller |
| CC-03 | +15 | Second reminder stating the statutory interest and compensation rights | Credit controller |
| CC-04 | +30 | Account on stop: new orders held, account owner informed | Credit manager |
| CC-05 | +45 | Final demand letter, approved template | Credit manager |
| CC-06 | +60 | Referral to collection agency or solicitor, with CFO approval above [GBP 25,000] | Credit manager |

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

<!-- Guidance: Classify disputes by root cause so recurring problems reach the right team. Pitfall: letting the whole invoice age because one line is disputed. -->

| Dispute type | Owner | Target resolution |
|---|---|---|
| Price or discount | Sales account owner | 10 working days |
| Delivery shortage or damage | Operations | 10 working days |
| Quality | Quality manager | 20 working days |
| Missing purchase order or paperwork | Credit controller | 5 working days |

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

<!-- Guidance: Report the same metrics every month with the same definitions. Pitfall: changing the DSO formula to make the trend look better. -->

| Metric | Definition | Target |
|---|---|---|
| DSO | Trade receivables at month end / last 12 months credit sales x 365 | [45] days |
| Overdue ratio | Balance past due / total receivables | [below 15%] |
| Over 90 days | Balance more than 90 days past due / total receivables | [below 3%] |
| Dispute ageing | Open disputes older than target resolution time | [zero] |
| Accounts over limit | Count and value | [zero unapproved] |

*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

<!-- Guidance: Link collections data to the accounting estimate. The method itself belongs in the ECL methodology; this section says which data the credit team supplies and who decides write-offs. -->

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):

| Ageing bucket | Gross balance | Loss rate | Allowance |
|---|---|---|---|
| Current | 1,200,000 | 0.5% | 6,000 |
| 1 to 30 days past due | 400,000 | 2.0% | 8,000 |
| 31 to 60 days | 150,000 | 6.0% | 9,000 |
| 61 to 90 days | 60,000 | 15.0% | 9,000 |
| More than 90 days | 40,000 | 50.0% | 20,000 |
| Total | 1,850,000 | 2.81% | 52,000 |

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

<!-- Guidance: List the key controls so internal audit can test them; reference IDs used in the risk control matrix. -->

| Control ID | Control | Frequency | Evidence |
|---|---|---|---|
| CCC-01 | New account file complete before first credit sale | Each account | Checklist in customer master |
| CCC-02 | System blocks orders above limit | Continuous | Block report |
| CCC-03 | Receivables ledger reconciled to general ledger | Monthly | Signed reconciliation |
| CCC-04 | Overdue review meeting with actions | Monthly | Minutes |
| CCC-05 | Credit notes and write-offs approved per authority | Each item | Approval log |
| CCC-06 | Customer bank detail and master data changes independently verified | Each change | Change log |

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

## 11. Glossary and references

<!-- Guidance: Keep definitions short and in your own words. -->

| Term | Meaning in this policy |
|---|---|
| Days past due | Calendar days after the agreed due date |
| On stop | Status in which new orders are held until the account is brought within terms |
| Promise to pay | Customer commitment to a date and amount, logged by the controller |
| Provision matrix | Table of loss rates by ageing bucket used to estimate the allowance |
| Write-off | Removal of a receivable from the ledger when recovery is no longer reasonably expected |

| Reference | Version or date | URL |
|---|---|---|
| Directive 2011/7/EU (late payment) | OJ L 48, 2011-02-23 | https://eur-lex.europa.eu/eli/dir/2011/7/oj/eng |
| Proposal COM(2023) 533 (late payment regulation) | Procedure 2023/0323/COD, ongoing | https://eur-lex.europa.eu/procedure/EN/2023_323 |
| Late Payment of Commercial Debts (Interest) Act 1998 | As amended | https://www.legislation.gov.uk/ukpga/1998/20 |
| UK Small Business Commissioner, interest guidance | Checked 2026-10-30 | https://www.smallbusinesscommissioner.gov.uk/interest-calculator-guidance-page/ |
| IFRS 9 Financial Instruments | As amended, cited by paragraph only | https://www.ifrs.org/issued-standards/list-of-standards/ifrs-9-financial-instruments/ |
| FASB ASU 2025-05, Topic 326 | July 2025 | https://www.fasb.org/standards |

## 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.