CREDITS and FINANCIAL

POLICIES

GROUP 1
BATILO, CHRISTINE OBALES, SHENNA
FEO, HENNA PADILLA, JOHN MARK
MALINOG, NATALIE PUEBLO, RICO
What is a Credit Policy?

A credit policy contains guidelines that

structure the amount of credit granted to
customers, as well as how collections are to
be conducted for delinquent accounts. The
policy is an essential element of the finances
of a business, since it impacts the amount of
working capital required to support
accounts receivable, and also influences the
amount of bad debt losses.
CREDIT POLICY
How to develop a credit policy?
To develop a credit policy, write a formal document with the following sections:

 1. Purpose statement
The top of the credit policy should state that the
document is your company credit policy. This purpose
statement can be brief; two or three sentences should
do.
 2. Statement of scope
Next, state the types of clients and sales your credit
policy governs. For example, some credit policies apply
only to domestic sales made to businesses of a certain
size, whereas others pertain only to
international clients.
3. Credit and payment terms
Perhaps the most important part of your credit policy is the
section on credit terms. Be sure to specify the following
information:
 Credit limits: State the credit limit or range you allow.
Include information about starting credit limits and when
limits are raised.
 Interest rates: Explain how you determine an interest rate.
For example, you may use the prime rate plus a certain
percentage. You can charge the same interest rate to
everyone or use an interest rate range. The most
creditworthy customers generally receive the lowest interest
rates because they pose the least risk to your company.
 Fees: Clearly state any fees for late payments
and charges over credit limits, as well as
penalties for checks backed by insufficient
funds.
 Repayment terms: Specify how long clients
have to repay invoices after they’re issued. If
applicable, include language about
corporate, bank or personal guarantees.
 4. Credit application and review
Your credit policy should detail how your company processes
credit applications and reviews the credit history of
established creditors. Include any factors that could result in
a lower credit line. Similarly, note any changes to established
customer accounts that could affect credit standing.
 5. Sales terms
Your sales team may want some flexibility to make credit
terms work for specific customers. Include text that
empowers your team members to modify terms to maximize
sales while still protecting the company’s cash flow.
 6. Statement of credit team roles
End your credit policy with a statement of who on
your team can execute certain credit-related tasks.
This way, both you and your debtors are clear on
which employees they can contact or expect to
hear from on credit-related matters. Without
mutual clarity on these terms, you might find that
unauthorized people on your team have extended
credit to unqualified clients. Retracting this credit
will be challenging, if not impossible.
 What to include in a credit
policy
Your finished credit policy should spell out these details:

• Qualifications for clients receiving credit

• Credit limits
• Credit terms
• Requests for customer information
• Invoicing terms
• Debt collection terms
Qualifications for clients receiving
credit
 You should run credit checks on clients, with
their permission, before you offer them credit.
A credit policy should state the minimum
requirements for clients to receive credit with
your best terms. Less-qualified clients may be
approved for lower credit limits or with less-
favorable terms. Clients with poor credit
histories are generally excluded from
receiving credit unless the debt is secured.
Credit limits
 The amount of credit you can extend generally
depends on the amount of risk you’re willing to take on
any given customer and how much total credit you can
afford to extend without damaging your own cash flow.
For example, if you expect to extend credit to up to 20
customers at once, plan to set credit limits for each
customer so you’re not in danger of hurting your own
cash flow.
 In addition, avoid extending too much credit for clients
to pay back. As they make payments regularly and
prove to be reliable, you can increase their credit limits.
Credit terms

 When businesses offer credit for more

than 30 days, they generally charge
interest on the balance. Include any
interest rates in your policy. Also list
payment deadlines, acceptable payment
methods (such as credit cards and
personal checks), early-payment
discounts, and late-payment or over-limit
fees.
Requests for customer information

 Inyour credit policy, state the types of

information clients must provide in order
to receive credit. Depending on the type of
customer and other factors, this
information may include how long they’ve
been in business, the goods and services
they expect to receive on credit, financial
statements and credit scores.
 The importance of credit
policies for businesses
Operating a company without a credit policy is inherently
risky. That’s because businesses without formal credit
policies may unwittingly extend credit to clients who are
unable to pay as promised or have track records of not
meeting financial obligations.
Credit policies also decrease the likelihood of unpaid
debts because they make it possible for you to set up
payment plans for clients who need to pay large
invoices.
Credit Policy and Business Strategy

 The credit policy is adjusted to match company

strategy, as well as to reflect changes in
economic conditions. Thus, a strategy to rapidly
expand sales might call for a change in the
credit policy to allow more credit to customers,
while a decline in economic conditions might
lead to a restriction in the credit policy in order
to guard against an increase in bad debt
expenses. In general, a company’s credit policy
should reflect its level of risk acceptance.
FINANCIAL POLICY
What is a Financial Policy?

 Financial policies are the rules or principles of

your business's accounting and financial
practices. They should reflect your business's
values and culture.
 Your procedures are the instructions that
outline what your employees must do to
abide by these policies.
Benefits of financial policies and
procedures
It might seem daunting but creating financial
policies and procedures manual can have many
long-term benefits for your business.
For example, your manual will:
 ensure all staff are aware of their obligations
 help your managers and supervisors make consistent
and reliable decisions
 give employees a clear understanding of what you
expect and allow
 reduce disputes
 add to the professionalism of your business
 Creating financial procedures
Sometimes a policy will need a supporting procedure.
Procedures are clear and concise instructions on how to abide
by the policy. They detail the sequence of activities needed to
complete tasks.
Your procedures should:
 be factual, succinct and simple to understand
 be in the best format for their purpose ­for example, a
procedure could be presented as written steps, a flow chart or
a checklist
 be written in a step-by-step style that shows people how to
follow the procedure through from beginning to end
 include references or links to any related documents and forms
that must be completed when following the procedure
Types of financial policies and
procedures

The policies and procedures that

you'll need will depend on your business.
Think about important areas of your
business where having consistent rules
and processes would add value.
For example:
 which job roles are allowed to authorise various
activities within the business
 when and how new bank accounts are opened
 new suppliers and how to choose them
 new customers and how to manage them
 buying and purchasing – for example, how to determine
when stock, equipment and assets need to be
purchased
 debt collection
 insurance and risk management
How to write your financial policy
manual

If creating a full manual feels overwhelming, try

to complete it in real-time as you work. Writing
while doing helps to break it into manageable
chunks and ensure you capture every step:
 Start by thinking about what you want to
achieve.
 Get your employees involved.
 Write down your policies and procedures as you
do each activity throughout the day.
 REFERENCES

SOURCES  Business Victoria. (2013, January

Accounting and 1). Accounting and financial policies and
financial policies procedures. Business Victoria.
and procedures. https://business.vic.gov.au/business-info
rmation/finance/develop-good-financial-p
rocedures/accounting-and-financial-polic
Accounting ies-and-procedures
Tools.  Bragg, S. (2022, August 9). Credit policy
definition —. AccountingTools. https://
www.accountingtools.com/articles/credit-
policy
How to develop  Freedman, M. (2021, March 24). How to
a credit policy develop a credit policy. Business News
Daily; businessnewsdaily.com.
 GROUP 1

BATILO, CHRISTINE

FEO, HENNA

MALINOG, NATALIE

OBALES, SHENNA

PADILLA, JOHN MARK

THANK YOU!
PUEBLO, RICO
AND
GOD BLESS