For many CFOs, a strong credit management policy is no longer a “nice to have”—it is a core financial control mechanism. Rising payment terms, margin pressure, and unpredictable customer behaviour place significant strain on working capital. Even profitable companies can run into liquidity issues if their credit process is inconsistent or reactive.
What most organisations don’t realise: payment problems rarely begin at the moment an invoice becomes overdue. They originate much earlier—during onboarding, contract design, communication, documentation, and internal alignment. A robust credit management policy brings structure, predictability, and control across every stage of the commercial relationship.
This article outlines a complete, modern credit management framework: from client acceptance to follow-up, escalation, and outsourcing.
1. Client onboarding: where real credit control begins
Many companies accept new clients on trust, enthusiasm, or commercial opportunity. Without a formal risk assessment, you are gambling with your cashflow.
A professional onboarding process includes:
- Full creditworthiness checks (business & UBO when relevant)
- Assigning a risk profile (A/B/C or a scoring model)
- Customised payment terms per risk category
- Documented credit limits and approval workflows for exceptions
Good onboarding eliminates much of the risk that later becomes “bad debt”.
2. Contract terms: clear, enforceable, and commercially realistic
Most disputes and late payments stem from unclear, outdated, or inconsistently applied conditions.
Your credit policy should guarantee:
- A current and enforceable set of terms & conditions
- Explicit payment terms (deadlines, deposits, milestone billing)
- Mandatory PO numbers where required
- Retention of title, deposits, or security for high-risk customers
- Indexation and price adjustment clauses for long-term contracts
- Clear internal approval rules for exceptions
Strong terms create leverage and reduce the chance that a customer can stall or dispute payment.
3. Invoicing: fast, accurate, consistent
Late or incorrect invoices are the #1 preventable cause of overdue payments.
High-performing finance teams:
- Invoice immediately after delivery or acceptance
- Use templates aligned with customer requirements
- Automate invoicing directly from ERP/CRM
- Ensure Sales is responsible for providing complete order information
A “first-time-right” invoicing process shortens payment cycles dramatically.
4. Customer communication: proactive and structured
Many businesses only start communicating once an invoice becomes overdue. By then, DSO is already increasing.
A strong credit policy defines communication at every stage:
- Order confirmation that restates payment terms
- Invoice emails with a clear contact point
- A pre-due reminder before the invoice expires
- Post-due reminders sent at consistent intervals
Proactive, friendly communication can reduce overdue invoices by 20–30%.
5. Standardised reminder and follow-up schedule
In many organisations, different people send reminders “whenever they have time”. This inconsistency directly increases DSO.
A structured reminder schedule typically includes:
- Day 0: Invoice sent
- Day 3–5: Friendly reminder
- Day 7–10: Firm reminder
- Day 14–21: Final notice + intention to escalate
- Day 21–28: Transfer to collections partner
The key is not aggression—it’s consistency.
6. Dispute management: resolve within 48 hours
Disputes are often the hidden cause of long DSO tails. Yet 80% of disputes arise from miscommunication, missing documents, or unclear expectations—not actual issues.
Effective dispute handling means:
- Logging disputes in a central system
- Acknowledging within 24–48 hours
- Requesting missing documentation immediately
- Separating genuine disputes from delay tactics
- Providing a structured outcome or next step
Fast dispute resolution = faster payments.
7. Escalation pathways and outsourcing protocol
A credit policy without escalation is merely a suggestion. Customers quickly learn whether your deadlines are “real”.
Your policy should define:
- The exact moment an account is escalated internally
- Who may negotiate, and under which conditions
- When an invoice is transferred to a collection agency
- Required documentation for a smooth handover
Early outsourcing does not harm customer relationships. In fact, when done professionally, it creates clarity and reduces friction.
A good partner—like CW & Partners—acts as an extension of your finance team: respectful, structured, but firm.
8. KPIs & dashboards: what every CFO should monitor
You cannot improve what you do not measure.
Key metrics include:
- DSO by segment, not only the total number
- % of invoices overdue
- Disputes and resolution time
- First-time-right invoicing rate
- Payment behaviour by customer category
- Risk-based cashflow forecasting
Finance leaders who track these metrics tighten their credit cycle significantly.
9. Automation & technology: scaling without adding headcount
Modern credit management tools transform the way finance teams operate.
Automation can:
- Send reminders at the perfect moment
- Analyse risk patterns using behavioural data
- Provide a client payment portal
- Centralise disputes
- Generate CFO dashboards automatically
Technology does not replace people—it amplifies them.
10. Culture & cross-department alignment
Credit management succeeds only when the whole organisation participates.
- Sales must set correct expectations and capture accurate data
- Finance must follow up consistently
- Management must enforce policy without unnecessary exceptions
- Customer service must document agreements properly
A credit policy is not a PDF. It’s a behavioural framework.
Conclusion: A strong credit policy protects growth, cashflow, and customer relationships
Organisations with a well-designed credit policy:
- Get paid faster
- Reduce disputes
- Improve liquidity
- Strengthen customer trust
- Reduce internal workload
- Protect margins and financial stability
And the best part:
A strong credit policy is entirely implementable — with the right structure, the right tools, and the right partner.
Want a credit management policy that reduces risk and improves cashflow — without increasing internal workload?
We design, implement, and manage complete credit management frameworks for organisations of every size.
Get in touch via WhatsApp, phone, e-mail, or our website.