Credit management fundamentals

Having an efficient credit management system that works in line with the rest of your business is key to keeping your company's cashflow healthy.

Here's a quick guide to help keep your system in order.

General credit guidelines

First rule is to make sure that you have a credit policy in place that each area of your company knows what is expected of them and buys into. Ask yourself:

  • Is your paperwork in order?
  • Are the guidelines robust?
  • Are they implemented by everyone?

Contractual framework

Make sure your contractual paperwork is clear and precise which in the event of any potential disputes with your customers will hold up in a court of law. This includes for example:

  • Period of payment
  • Order forms
  • Terms and conditions

Customer data

It is essential to capture and maintain accurate data which is constantly updated. This should include:

  • Precise billing address
  • Legal form of business
  • Owner, managing director
  • Contact details

Check creditworthiness

Providing credit to your customers without checking their credit worthiness is a bit like playing Russian Roulette. It's also important that this check isn’t carried out as a one-off and that you regularly check their credit worthiness and risk assessment.

This is particularly important the higher the volume of business or exposure to risk.


It is essential to capture and maintain accurate data which is constantly updated. This should include:

  • debtors' financing costs
  • average days of sales outstanding (DSO)
  • bad debts
  • receivables structure

Line of credit

Establishing a maximum line of credit for your customers is your benchmark of their credit worthiness. So if they go over this credit ceiling, this should prompt the necessary course of action. However, questions to consider are:

  • Do you allocate lines of credit according to an established and understandable system?
  • Are your decision makers adequately qualified to ensure well-balanced assessments?

Terms of payment

Having a range of payment options depending on the customers risk could reduce your company's exposure. The following options should be taken into consideration for each individual case:

  • Prepayment
  • Down payment
  • Payment on delivery of goods or services
  • Period of payment / due dates
  • Discounts
  • Date upon which bank account is effectively credited

And remember when supplying goods or services to new or unknown customers, make sure payment terms are cash or down payment.

Debt collection system

The often bad payment behaviour in certain countries and sectors necessitates the implementation of a consequent debt collection system. Be sure to address the following issues:

  • Is your debt collection department well-organised and efficient, and are your collection terms consequently adhered to?
  • Are your reminders effectively worded?
  • Are your collection activities tailored to take into account your customers’ importance and their individual circumstances?
  • Does your debt collection include phone calls and have the relevant employees received adequate training?
  • Do you collaborate with acknowledged collection agencies and/or solicitors if your own efforts should prove to be unsuccessful?


Wherever possible, make sure your customer provides a security. This will help you keep losses to a minimum if a customer files for insolvency. Also consider credit insurance which offers comprehensive protection in case your customer fails to pay.

Customers' crisis and insolvency

Keeping in regular contact with your customer prior to or during insolvency can help you reduce a default risk. Also make sure you seek the advice of a solicitor.

Export coverage

When your business starts exporting don't forget special expertise is required for international trade transactions and you are advised to seek expert advice. This will include:

  • Specific payment practices
  • Securitisation tools
  • Successful collection techniques for specific countries
  • Reaction to insolvencies
  • Special sources of information
  • Alternative coverage concepts (credit insurance)


A considerable range of receivables management software is on the market and offers constant updates. However, prior to deciding on investing in modernisation measures you should conduct a cost-benefit analysis. Ask yourself, if your existing debt management and collection enforcement software meets your company's quality standards.


It can often be more cost-effective to outsource all or part of your credit management. Services include:

  • Coverage of default/non-payment of risks (credit insurance)
  • Financing (factoring/ forfeiting/asset backed securities)
  • Debt collection (collection agencies, solicitors)


It is worth looking at how your competitors or sister companies within the holding group manage their credit processes. Try to obtain data that enables you to make comparisons an align your objectives according to what you consider to be examples of best practice.

Advance training for staff

Invest in the development of your staff through training, events and attending seminars. Interacting with and exchanging experience with other companies can benefit your business enormously and shares best practice ideas.

All content on this page is subject to our Disclaimer, available here.

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With Atradius Credit Insurance you can trade with confidence and explore new markets or products, knowing that your business is protected against credit risk such as the insolvency of your customers.

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