¶¶Òõ¶ÌÊÓƵ

A Credit Policy sets out how an organization handles lending decisions, payment terms, and debt collection. It guides staff on who can get credit, how much they can borrow, and what happens if they don't pay. For UK businesses, these policies help comply with FCA regulations and the Consumer Credit Act while managing financial risk.

Good credit policies protect companies by establishing clear rules for credit checks, payment deadlines, and enforcement steps. They typically include specific criteria for credit limits, interest charges, and recovery procedures - all aligned with British contract law and financial services rules. Many businesses update their policies yearly to reflect market conditions and regulatory changes.

Your business needs a Credit Policy when you start offering payment terms or extending credit to customers. This becomes essential as sales grow and you need consistent rules for managing credit risks. UK businesses handling consumer credit must have clear policies to meet FCA requirements and avoid regulatory issues.

Update your Credit Policy when expanding into new markets, changing payment terms, or responding to shifts in customer defaults. Many companies review their policies after experiencing payment problems or before taking on larger commercial clients. Regular updates also help maintain compliance with evolving financial regulations and industry standards.

• Credit Note Policy: Specialised form of Credit Policy focused on managing customer refunds and credit adjustments. Most Credit Policies fall into broader categories: Standard Commercial Policies (for B2B transactions), Consumer Credit Policies (following FCA regulations), Trade Credit Policies (for supplier relationships), and Industry-Specific Policies (tailored for sectors like retail or construction). Each type adapts core elements like credit limits, payment terms, and collection procedures to suit specific business needs.

• Finance Directors and CFOs: Take primary responsibility for developing and approving Credit Policy terms, setting risk tolerance levels, and ensuring alignment with business goals.
• Credit Controllers: Handle day-to-day implementation, including credit checks, payment monitoring, and debt collection processes.
• Sales Teams: Must understand and work within policy limits when negotiating payment terms with customers.
• Legal Teams: Review policies for FCA compliance and ensure enforceability under UK law.
• Business Customers: Agree to credit terms and must comply with payment conditions set out in the policy.

• Business Assessment: Review your current credit exposure, customer payment history, and risk tolerance levels.
• Industry Research: Gather typical payment terms and credit limits in your sector to set competitive yet safe boundaries.
• Legal Requirements: Check FCA regulations and Consumer Credit Act compliance needs for your specific business activities.
• Internal Process Review: Map out your credit approval chain, collection procedures, and escalation steps.
• Documentation Setup: Use our platform to generate a legally-sound Credit Policy template, customised to your business needs and UK regulations.

• Credit Assessment Criteria: Clear parameters for evaluating creditworthiness, including required documentation and scoring methods.
• Credit Limits: Specific monetary thresholds and approval levels for different customer categories.
• Payment Terms: Detailed payment schedules, early payment discounts, and late payment consequences.
• Collection Procedures: Step-by-step debt recovery process, including timelines and escalation paths.
• Data Protection: GDPR-compliant procedures for handling customer financial information.
• Legal Framework: References to relevant UK legislation, including Consumer Credit Act compliance requirements.

A Credit Policy differs significantly from a Credit Agreement in both scope and purpose. While they're related, understanding their distinct roles helps avoid legal confusion. Let's explore the key differences:

• Purpose and Nature: A Credit Policy is an internal document guiding how a business handles all credit decisions, while a Credit Agreement is a specific contract between lender and borrower.
• Legal Status: Credit Policies serve as operational guidelines without direct enforceability against customers, whereas Credit Agreements are legally binding contracts.
• Scope: Policies cover broad principles and procedures for all credit situations, while Agreements detail specific terms for individual lending arrangements.
• Flexibility: Companies can update Credit Policies internally as needed, but Credit Agreements require mutual consent to modify once signed.
• Target Audience: Policies guide staff behavior and decision-making, while Agreements establish rights and obligations between specific parties.