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CUSTOMER CREDIT POLICY: SAMPLE 1............................................................................................................. 2

CUSTOMER CREDIT POLICY: SAMPLE 2............................................................................................................. 5

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CUSTOMER CREDIT POLICY: SAMPLE 1

Prepared By:

Approved By:

Revision Date:

Effective Date:

The following sample outlines a set of policies and procedures for the credit hold and release process, the
ongoing credit review of customer accounts, and establishing guidelines for customer credit limits.

PURPOSE

The purpose of this policy is to establish guidelines for establishing customer credit limits, the credit hold and
release process, and the ongoing credit review of customer accounts.

SCOPE

This policy applies to Company X employees at all locations that are involved in the review and establishment of
customer credit, including credit analysts, treasury managers, customer service representatives (CSRs), regional
sales managers, business directors, vice president (VP) of sales and chief financial officers (CFOs). The VP of
sales will be responsible for enforcing the customer credit process for small customer accounts and the treasury
manager will be responsible for enforcing the customer credit process for large customer accounts.

POLICY

It is the policy of Company X that both new and existing customer accounts must be properly evaluated, reviewed
and approved for creditworthiness. This policy intends to maximize profitability by minimizing credit risk and
potential collections issues.

DEFINITIONS

• CSR: Customer Service Representative

PROCEDURES

CUSTOMER ACCOUNT CLASSIFICATION

Customer accounts are classified by the contribution significance to total Company X accounts receivable
exposure. All customer accounts must be classified as either a small customer account or a large customer
account. Small customer accounts must comprise approximately X% of total Company X accounts receivable
exposure and large customer accounts must comprise approximately X% of total Company X accounts receivable
exposure.

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ESTABLISHMENT OF CUSTOMER CREDIT
New customers seeking to establish credit must complete a credit application and obtain credit approval prior to
any services being rendered or materials delivered. Either the regional sales managers or the treasury manager
will be responsible for reviewing financial information and authorizing credit establishment according to the
customer account type:

Title Customer Account Type

Regional Sales Manager Small Customer Account

Treasury Manager Large Customer Account

The regional sales managers will be responsible for granting credit to small customer accounts. If extended credit,
all small customer accounts must be granted $X credit limit. The treasury manager will be responsible for granting
credit to large customer accounts. For large customer accounts, the credit limit must be calculated based on the
customer payment terms plus X days.

If a customer is not extended a credit limit, then Company X must request cash payment or a letter of credit from
a third party prior to placing the order. The treasury manager will be responsible for reviewing any letters of credit.

PRIVACY
Exchange of credit information related to a customer’s credit experience with credit agencies, banks and trade
suppliers must always be conducted confidentially. All information must relate only to past experience without
reference to current credit terms and future intentions.

CREDIT HOLDS
The credit hold process is a method that Company X utilizes to minimize risk through the proper evaluation of a
customer account. Every customer order is automatically reviewed in the ERP system to ensure that a customer’s
credit limit has not been exceeded and to ensure that the account is not delinquent. Conditions that will result in a
customer order being placed on credit hold are:
• The sum of unpaid invoices, invoiced shipments and orders scheduled within the next seven days exceeds the
credit limit.
• The amount of the order is $X or greater.
• The account has invoices that are over 60 days past due, regardless of the amount.

Municipalities or organizations that only serve the public will be exempt from credit holds.

CREDIT RELEASE
Either CSRs or credit analysts will be responsible for identifying customer orders that have been placed on credit
hold and determining the reason for the hold, based on the customer account type. The CSRs will be responsible
for monitoring small customer accounts and the credit analysts will be responsible for monitoring large customer
accounts. Either the regional sales managers or the treasury manager will be responsible for authorizing credit
hold releases according to the customer account type:

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Title Customer Account Type

Regional Sales Manager Small Customer Account

Treasury Manager Large Customer Account

If a customer account is past due, authorization is not required to release orders from credit hold if the customer
provides a reasonable promise to pay.

When the customer’s credit limit has been exceeded, the CSRs must obtain authorization from the regional sales
manager to release the order from credit hold for small customer accounts. For large customer accounts, the
credit analysts must obtain the treasury manager’s authorization to release the order from credit hold. If the
customer account is over the credit limit and the customer has been assigned the low-risk profile in the ERP
system, it will be at the discretion of the credit analysts as to whether authorization is required to release the order
from credit hold. For all other risk levels, the credit analysts must obtain authorization to release the order from
credit hold. Each order on credit hold must require a separate authorization for release. Only the credit analysts
will be authorized to release orders from credit hold in the ERP system.

For small customer accounts, if the regional sales manager is unavailable to authorize a credit hold release, then
the CSRs must obtain authorization for credit hold release from one of the following Company X employees, in
this order according to availability: business director (same product), VP of sales and the treasury manager. For
large customer accounts, if the treasury manager is unavailable to authorize a credit hold release, then the credit
analysts must obtain authorization for credit hold release from one of the following Company X employees, in this
order according to availability: CFO and regional sales manager.

The credit analysts must contact the CSRs and sales if an order will not be released from credit hold.

ONGOING REVIEW OF CUSTOMER ACCOUNTS

The treasury manager will be responsible for the ongoing review of customer accounts, which must be conducted
quarterly. As part of the quarterly review, the treasury manager must determine the customer account
assignments and whether to adjust customer account credit limits. In addition, the treasury manager will be
responsible for maintaining and reviewing any customer accounts perceived to be high-risk.

The CSRs and credit analysts should advise the treasury manager of any potential circumstances that may
adversely impact customer creditworthiness, including exceeding credit limits, changes in the customer’s payment
pattern (a customer is slower in paying), changes to the monthly sales volume, news of bankruptcy, layoffs, asset
sales, executive management turnover and high employee turnover.

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CUSTOMER CREDIT POLICY: SAMPLE 2

Prepared By:

Approved By:

Revision Date:

Effective Date:

PURPOSE

This policy establishes the guidelines for establishing customer credit limits at (Company ABC).

SCOPE

This policy will be uniformly applied to both established and prospective customers.

COMPANY CREDIT POLICY

This policy has been created to define credit limits for new (Company ABC) customers and existing (System X)
customers, and minimize write-offs of bad debt customer accounts, maximizing sales and how to manage cash
flow. It is the responsibility of the (Company ABC) accounting manager to enforce this policy under the direction of
the (Company ABC) controller and (Company ABC) chief financial officer.

COMPANY’S CREDIT POLICY TERMS

NEW CUSTOMERS
• (Company ABC) customer service personnel create (System X) customer master data and then create the
(System X) sales order from the customer’s purchase order. The order remains in the status of Entered until
(System X) credit terms have been established and approved.
• (Company ABC) accounts receivable personnel contact the new customer to attain three formal, documented
trade references. Trade references will include the credit terms of the respective customer on the (Company
ABC) trade reference form, including length of time sold, terms of sale, recent high credit, current amount
owed, past due amount and recent payment trends – promptness or slowness.
• (Company ABC) accounts receivable personnel conduct credit assessments and creditworthiness checks by
reviewing both the customer’s trade reference forms and credit application form for determining credit rules
and terms. This review is documented.
• The (Company ABC) accounting manager and controller review the account receivable personnel’s credit term
recommendations and sign-off on the customer credit application.
• (Company ABC) accounts receivable personnel then update the customer’s (System X) customer master
credit terms and subsequently notifies customer service personnel that the new customer has been released.
• Customer service personnel then save and change the sales order status to Booked, allowing materials to be
ordered from suppliers so that the final product can be manufactured.

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EXISTING CUSTOMER CREDIT RULE PROCESSING
• During the booking of the sales order, (System X) performs background systematic credit checks based on the
customer master credit terms and outstanding accounts receivable balances of the customer. An order will go
on hold automatically if the customer’s credit limits are exceeded. (System X) credit checking is also performed
during picking and shipping transactions to ensure that invoices have not become past due or that no other
orders resulting in exceeding customer credit limits have been processed.
• When (System X) sales orders go on hold while booking, picking or shipping transactions, customer service
personnel contact (Company ABC) accounts receivable personnel along with the customer’s purchasing buyer,
who both then contact the customer’s accounts payable personnel in order to expedite payment to (Company
ABC). Unless payments are received to lower the customer’s available credit, (Company ABC) shipment and
resulting invoicing do not occur.

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