{"id":30907,"date":"2025-06-03T09:00:06","date_gmt":"2025-06-03T13:00:06","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=30907"},"modified":"2025-08-19T06:43:00","modified_gmt":"2025-08-19T10:43:00","slug":"credit-policy-plan","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/credit-policy-plan\/","title":{"rendered":"How to create a credit policy plan that reduces risk and DSO"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-us\/blog\/category\/money-matters\/\" class=\"entry-header__link\">Money Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tHow to create a credit policy plan that reduces risk and DSO\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2025-06-03T09:00:06-04:00\">June 3, 2025<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"How to create a credit policy plan that reduces risk and DSO\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-us\/blog\/credit-policy-plan\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<div class=\"wp-block-post-author has-dark-background-color alignfull\">\n\t<div class=\"container\">\n\t\t<div class=\"col\">\n\t\t\t\t\t\t\t<div class=\"co-authors\">\n\t\t\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-us\/blog\/author\/elizabethryan\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2024\/08\/lizryan-350x350.png\" class=\"entry-author__image\" alt=\"Elizabeth Ryan\" \/>\t\t\t\t<span class=\"entry-author__name\">Elizabeth Ryan<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n\n\n<p>According to the Credit Research Foundation, only a small percentage of credit departments have formalized credit policies. However, implementing one can lead to major improvements in<a href=\"https:\/\/www.sage.com\/en-us\/blog\/what-is-accounts-receivable\/\"> accounts receivable<\/a> (AR), <a href=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/cash-flow-statement\/\">cash flow<\/a>, and collections efficiency.<\/p>\n\n\n\n<p>A credit policy isn\u2019t just a document\u2014it\u2019s a tool that helps align your finance team, improve customer relationships, and minimize risk. This guide outlines six steps to help you build a credit policy plan that supports your goals, standardizes your collections process, and gives your business the structure it needs to scale responsibly.<\/p>\n\n\n<?xml encoding=\"utf-8\" ?><div class=\"wp-block-yoast-seo-table-of-contents yoast-table-of-contents\"><ul><li><a href=\"#h-what-is-a-credit-policy-plan\" data-level=\"2\">What Is a credit policy plan?<\/a><\/li><li><a href=\"#h-step-1-assess-your-current-credit-practices\" data-level=\"2\">Step 1: Assess your current credit practices<\/a><ul><li><a href=\"#h-analyze-your-customer-base\" data-level=\"3\">Analyze your customer base<\/a><\/li><li><a href=\"#h-review-key-metrics\" data-level=\"3\">Review key metrics<\/a><\/li><\/ul><\/li><li><a href=\"#h-step-2-define-goals-and-mission\" data-level=\"2\">Step 2: Define goals and mission<\/a><ul><li><a href=\"#h-create-a-credit-mission-statement\" data-level=\"3\">Create a credit mission statement<\/a><\/li><li><a href=\"#h-set-performance-goals\" data-level=\"3\">Set performance goals<\/a><\/li><\/ul><\/li><li><a href=\"#h-step-3-build-a-cross-functional-credit-team\" data-level=\"2\">Step 3: Build a cross-functional credit team<\/a><\/li><li><a href=\"#h-step-4-standardize-and-document-collections-procedures\" data-level=\"2\">Step 4: Standardize and document collections procedures<\/a><ul><li><a href=\"#h-customize-by-credit-class\" data-level=\"3\">Customize by credit class<\/a><\/li><li><a href=\"#h-adopt-best-practices\" data-level=\"3\">Adopt best practices<\/a><\/li><\/ul><\/li><li><a href=\"#h-step-6-commit-to-continuous-improvement\" data-level=\"2\">Step 6: Commit to continuous improvement<\/a><\/li><li><a href=\"#h-final-thoughts\" data-level=\"2\">Final thoughts<\/a><\/li><\/ul><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-a-credit-policy-plan\"><strong>What Is a credit policy plan?<\/strong><\/h2>\n\n\n\n<p>A credit policy plan outlines how your business evaluates, extends, and manages customer credit. A strong plan should help:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Reduce bad debt and write-offs<br><\/li>\n\n\n\n<li>Shorten the order-to-cash cycle<br><\/li>\n\n\n\n<li>Improve visibility into AR risk<br><\/li>\n\n\n\n<li>Align cross-functional teams on consistent credit procedures<br><\/li>\n<\/ul>\n\n\n\n<p>The policy should define key roles and responsibilities, document credit and collections workflows, and establish performance targets such as Days Sales Outstanding (DSO).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-step-1-assess-your-current-credit-practices\"><strong>Step 1: Assess your current credit practices<\/strong><\/h2>\n\n\n\n<p>Before you create a policy, gather the data and context you need to make informed decisions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-analyze-your-customer-base\"><strong>Analyze your customer base<\/strong><\/h3>\n\n\n\n<p>Segment customers by:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Industry (e.g., NAICS\/SIC codes)<br><\/li>\n\n\n\n<li>Sales volume<br><\/li>\n\n\n\n<li>Account age (new vs. long-term)<br><\/li>\n<\/ul>\n\n\n\n<p>Look for patterns. For example, newer customers might pay faster than legacy accounts due to improved onboarding or updated credit checks.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-review-key-metrics\"><strong>Review key metrics<\/strong><\/h3>\n\n\n\n<p>Track baseline metrics to understand your current position:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>DSO<br><\/li>\n\n\n\n<li>Bad debt write-offs<br><\/li>\n\n\n\n<li>Disputed invoices<br><\/li>\n\n\n\n<li>Broken payment promises<br><\/li>\n<\/ul>\n\n\n\n<p>Use this data to set measurable targets later in the process.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-step-2-define-goals-and-mission\"><strong>Step 2: Define goals and mission<\/strong><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-create-a-credit-mission-statement\"><strong>Create a credit mission statement<\/strong><\/h3>\n\n\n\n<p>Align your credit strategy with broader business objectives. A sample mission could be:<\/p>\n\n\n\n<p>\u201cTo provide accurate, timely, and customer-friendly credit services that support growth, minimize risk, and maintain positive client relationships.\u201d<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-set-performance-goals\"><strong>Set performance goals<\/strong><\/h3>\n\n\n\n<p>Use your benchmark data to create measurable goals. For example:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Reduce DSO by 15%<br><\/li>\n\n\n\n<li>Lower bad debt write-offs by 10%<br><\/li>\n\n\n\n<li>Improve invoice accuracy and dispute resolution time<br><\/li>\n<\/ul>\n\n\n\n<p>Even small changes to DSO can significantly improve cash flow.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-step-3-build-a-cross-functional-credit-team\"><strong>Step 3: Build a cross-functional credit team<\/strong><\/h2>\n\n\n\n<p>Your AR strategy is only as strong as the team behind it. Assign clear responsibilities to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>CFO:<\/strong> Oversees credit policy performance and legal issues<br><\/li>\n\n\n\n<li><strong>Credit Manager:<\/strong> Leads credit decisions, collections strategies, and escalations<br><\/li>\n\n\n\n<li><strong>Sales Reps:<\/strong> Submit credit applications and collaborate on account follow-up<br><\/li>\n\n\n\n<li><strong>AR Clerks:<\/strong> Generate and send invoices, verify accuracy, and maintain records<br><\/li>\n\n\n\n<li><strong>Collectors:<\/strong> Follow up on overdue accounts, resolve disputes, and report issues<br><\/li>\n<\/ul>\n\n\n\n<p>Every role should have documented responsibilities and escalation paths.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-step-4-standardize-and-document-collections-procedures\"><strong>Step 4: Standardize and document collections procedures<\/strong><\/h2>\n\n\n\n<p>Clearly define how your team should manage collections across customer segments:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-customize-by-credit-class\"><strong>Customize by credit class<\/strong><\/h3>\n\n\n\n<p>Develop separate procedures for:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Government vs. commercial clients<br><\/li>\n\n\n\n<li>High-risk vs. low-risk customers<br><\/li>\n\n\n\n<li>Large vs. small accounts<br><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-adopt-best-practices\"><strong>Adopt best practices<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Use templates for dunning letters and email reminders<br><\/li>\n\n\n\n<li>Track dispute reasons and broken payment promises<br><\/li>\n\n\n\n<li>Implement escalation rules based on aging and risk<br><\/li>\n\n\n\n<li>Store credit policies and scripts in a central location (e.g., SharePoint)<br><\/li>\n<\/ul>\n\n\n\n<p><strong>Step 5: Consider a Credit &amp; Collections Management (CCM) System<\/strong><\/p>\n\n\n\n<p>Manual tracking and spreadsheets make it difficult to stay consistent. A dedicated CCM solution like <strong>Sage AR Automation<\/strong> can help you:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Automate invoice delivery, reminders, and dunning letters<br><\/li>\n\n\n\n<li>Centralize documents, customer notes, and payment history<br><\/li>\n\n\n\n<li>Track KPIs like DSO, collection efforts, and dispute resolutions<br><\/li>\n\n\n\n<li>Reduce labor costs and improve AR team productivity<br><\/li>\n<\/ul>\n\n\n\n<p>Companies that implement automation often see 10\u201320% improvements in DSO and significant savings in admin time.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-step-6-commit-to-continuous-improvement\"><strong>Step 6: Commit to continuous improvement<\/strong><\/h2>\n\n\n\n<p>A credit policy isn\u2019t a static document. Review and revise it regularly to:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Adapt to new markets or customer types<br><\/li>\n\n\n\n<li>Reflect changes in payment behavior or industry regulations<br><\/li>\n\n\n\n<li>Align with updated company goals<br><\/li>\n<\/ul>\n\n\n\n<p>Empower your team to contribute to improvements by tracking insights from collections, disputes, and customer feedback.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-final-thoughts\"><strong>Final thoughts<\/strong><\/h2>\n\n\n\n<p>Creating a credit policy plan doesn\u2019t have to be complicated\u2014but it does need to be intentional. By following these six steps, you can build a framework that improves collections, reduces risk, and aligns your team on shared objectives.<\/p>\n\n\n\n<p>A modern, automated system like <a href=\"https:\/\/www.sage.com\/en-us\/products\/sage-ar-automation\/\"><strong>Sage AR Automation<\/strong> <\/a>can help you implement and enforce that policy more effectively, protecting cash flow while allowing you to focus on growth.<\/p>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to our Sage Advice Newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p>Get our latest business advice delivered directly to your inbox.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-ab515c6e-7e90-4c2f-a67e-113872516e8b\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg\" class=\"single-cta__image\" alt=\"Working from home with tea in hand\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2022\/04\/GettyImages-1073797282-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Learn how to develop a business credit policy that improves collections, reduces DSO, and aligns your team\u2014step by step.<\/p>\n","protected":false},"author":1806,"featured_media":20281,"menu_order":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"footnotes":""},"categories":[43],"tags":[],"business_type":[312],"lilypad":[],"context":[],"industry":[57],"persona":[150],"imagine_tag":[],"coauthors":[584],"class_list":["post-30907","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-matters","business_type-accountants","industry-financial-services"],"sage_meta":{"region":"en-us","author_name":"Elizabeth Ryan","featured_image":"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2023\/09\/GettyImages-1488918938.jpg","imagine_tags":[]},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice US","distributor_original_site_url":"https:\/\/www.sage.com\/en-us\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts\/30907","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/users\/1806"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/comments?post=30907"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/posts\/30907\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media\/20281"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media?parent=30907"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/categories?post=30907"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/tags?post=30907"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/business_type?post=30907"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/lilypad?post=30907"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/context?post=30907"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/industry?post=30907"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/persona?post=30907"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/imagine_tag?post=30907"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/coauthors?post=30907"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}