A customer credit policy is the set of rules that decides who you sell to on credit terms, how much you finance them, and what signals trigger control measures before payment default appears. In an SME, trade credit is often the largest involuntary “investment”: the more you sell on credit, the more cash is tied up in customers. The goal is not to sell less, but to sell with measured risk, protecting margin and treasury. Working framework in 6 steps:
Step 1. Segment customers by risk and value
Not all customers deserve the same level of financing. Divide into at least three groups: strategic customers (high volume or margin), standard customers, and occasional or new customers. From there, the same delay is not treated equally across all.
Step 2. Define standard payment terms
Set a default base term and avoid “tailored” agreements without control. If your standard term is 30 days, any exception must require internal validation. This simple rule reduces commercial disorder.
Step 3. Establish clear credit limits
The limit is the maximum outstanding balance you are willing to finance. In SMEs, a practical method is to link the limit to payment behavior and volume: for example, a multiple of the average monthly purchase, adjusted by history.
Step 4. Build a simple internal scoring system
You don’t need a complex model to make good decisions. A score from 0 to 100, with 5 factors, is usually sufficient: payment history, concentration, relationship longevity, incidents, and basic external signals. Each factor has ranges and points. The result classifies the customer as green, amber, or red.
Step 5. Implement early alerts and automatic actions
Alerts should trigger before payment default, not after. Typical signals: first time the customer delays more than X days, two delays in three months, overdue balance above a threshold, repeated invoice disputes, or sudden increase in orders when their payment behavior worsens.
Step 6. Govern the system without blocking sales
The policy must be known by sales and administration, with a clear circuit: who approves exceptions, in what timeframe, and with what criteria. If the circuit is slow, sales will bypass it. A useful operational scheme is a lightweight weekly “credit committee” of 15 minutes, with a list of exceptions and decisions.
One last key point: document and communicate professionally. With a framework like this, the company maintains sales but stops financing without control, detects signals early, and gains the ability to decide with data.
Having personalized support, such as that from the Economic Office of Galicia, can make a difference in the successful implementation of this tool. Request the free specialized advice from the Economic Office of Galicia and use the available resources to boost your business.
