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A Credit Policy sets the rules and standards an organization uses to manage lending risks and make decisions about extending credit. It spells out who can get credit, how much they can receive, and what happens if they don't pay. Banks, credit unions, and businesses use these policies to stay consistent with federal regulations like the Fair Credit Reporting Act.

The policy typically covers credit evaluation methods, required documentation, approval levels, and collection procedures. It helps protect lenders from excessive risk while ensuring fair treatment of applicants. A well-designed Credit Policy also guides staff in handling special cases and maintaining compliance with state lending laws and federal requirements.

Your business needs a Credit Policy before extending any type of credit to customers or clients. This is especially crucial when launching B2B services, opening trade accounts, or offering payment plans. Having this policy in place protects your company from financial losses and legal issues that come from inconsistent credit decisions.

Use a Credit Policy when training new staff on credit procedures, responding to auditors, or proving compliance with federal lending regulations. It becomes essential during periods of business growth, when dealing with high-value transactions, or if your industry faces increased credit risks. A clear policy helps prevent discrimination claims and guides difficult decisions about credit limits and collections.

• Basic Commercial Credit Policy: Sets standard B2B credit terms, approval processes, and collection procedures. Commonly used by wholesalers and manufacturers.
• Consumer Credit Policy: Focuses on retail lending, credit card issuance, and personal loans. Includes Fair Credit Reporting Act compliance measures.
• Banking Credit Policy: Comprehensive guidelines for loan underwriting, risk assessment, and portfolio management used by financial institutions.
• Industry-Specific Policy: Tailored for sectors like construction or healthcare, addressing unique payment cycles and risk factors.
• Small Business Credit Policy: Simplified framework for managing customer credit accounts, suitable for smaller operations with limited credit offerings.

• Finance Directors: Develop and oversee the Credit Policy, setting overall risk tolerance and financial guidelines.
• Credit Managers: Implement daily credit decisions, manage customer accounts, and ensure policy compliance.
• Legal Counsel: Review policy terms for regulatory compliance and help draft enforcement procedures.
• Sales Teams: Follow credit limits and procedures when negotiating customer payment terms.
• Accounts Receivable Staff: Apply policy guidelines for collections and payment monitoring.
• Business Customers: Must comply with credit terms, documentation requirements, and payment schedules.

• Risk Assessment: Review your business's credit loss history, industry standards, and financial goals.
• Legal Requirements: Gather relevant federal lending regulations and state-specific credit laws.
• Customer Data: Define what financial information and documentation you'll require from credit applicants.
• Credit Limits: Establish clear criteria for setting credit limits and payment terms.
• Collection Process: Map out your collection procedures, late payment penalties, and dispute resolution steps.
• Internal Controls: Define approval levels, documentation requirements, and monitoring procedures.
• Policy Review: Set up regular review cycles to keep the policy current with business needs and regulations.

• Purpose Statement: Clear objectives and scope of credit operations, including types of credit offered.
• Credit Criteria: Specific requirements for credit approval, including financial metrics and documentation.
• Fair Lending Statement: Commitment to equal credit opportunity and non-discrimination practices.
• Application Process: Required documentation, evaluation procedures, and approval levels.
• Terms and Conditions: Payment terms, interest rates, late fees, and default consequences.
• Collection Procedures: Steps for handling past-due accounts and debt recovery.
• Compliance Section: References to relevant federal regulations and state lending laws.
• Review Protocol: Schedule and process for policy updates and amendments.

A Credit Policy differs significantly from a Credit Agreement in both scope and purpose. While both documents deal with credit relationships, they serve distinct functions in financial operations.

• Purpose and Scope: Credit Policies establish company-wide guidelines for all credit decisions, while Credit Agreements are specific contracts between lender and borrower for individual transactions.
• Legal Application: Credit Policies are internal governance documents that guide decision-making, whereas Credit Agreements are legally binding contracts that create enforceable obligations.
• Content Focus: Policies outline evaluation criteria, risk tolerances, and procedures; Agreements specify exact loan terms, payment schedules, and default remedies.
• Duration: Credit Policies remain active until formally revised by management, while Credit Agreements exist for a defined term or until the debt is satisfied.