Drafting a Credit Policy

Objective: Develop a basic credit policy for a fictitious company to understand the fundamental components and their importance.

Instructions:

1. Company Profile: Imagine you are the credit manager for “TechServe Inc.,” a medium-sized IT services provider. The company offers services to both small businesses and large enterprises.
2. Components to Include:
   • Credit Terms: Decide on standard credit terms (e.g., net 30, net 60) based on the company’s cash flow needs and industry standards.
   • Credit Limits: Set credit limits for different types of customers (e.g., small businesses vs. large enterprises).
   • Payment Methods: Specify acceptable payment methods (e.g., bank transfers, checks, credit cards).
   • Late Payment Penalties: Define penalties for late payments (e.g., interest on overdue amounts).
   • Credit Approval Process: Outline the steps required for a customer to receive credit (e.g., credit application, financial statement review, credit check).
   • Review and Monitoring: Include how often the policy should be reviewed and the criteria for adjusting credit terms or limits.
3. Deliverable: Write a 1-2 page credit policy document, ensuring clarity and alignment with the company’s business objectives.

Discussion: After drafting the policy, discuss with peers or in groups the potential risks and benefits of the policy you created. Consider how the policy might affect customer relationships, cash flow, and the company’s overall risk exposure.