Payment terms are a use of company cash
When the company delivers before collecting, it finances the customer for the gap between service or shipment and cash receipt. Longer terms can support sales, but they also increase working-capital needs and collection risk.
A credit policy makes that tradeoff explicit.
Set approval rules by exposure
Define standard terms, who can approve exceptions, when deposits are required, customer credit limits, documentation needed, and how large or high-risk accounts are reviewed.
Sales should know the rules before promising custom terms in a contract.
Connect credit limits to open receivables
A customer at its limit may need to pay existing invoices before new work or shipments are released. Track total exposure, not only the age of the oldest invoice.
Include unbilled work or committed delivery when it creates meaningful additional risk.
Review the policy with actual collection data
If a segment routinely pays late despite favorable terms, adjust deposits, limits, or contract structure. If strong customers pay predictably, the company may choose to be more flexible.
The policy should evolve from real receivable behavior rather than remain a static document.
Questions buyers usually ask
What should a customer credit policy include?
Define standard payment terms, approval for exceptions, deposits, credit limits, review criteria, collection escalation, and when new work or shipments should pause.
Why are payment terms a cash-flow decision?
The business often incurs costs before the customer pays, so longer terms increase the amount of working capital tied up in receivables.
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