B2B Credit Policy: What to Include and Why It Matters

Most B2B companies have a credit policy somewhere. It was written during a collections crisis, approved by the CFO, and hasn't been touched since. If you can't locate it in under two minutes, it isn't functioning as a policy — it's functioning as a document.

A credit policy that actually works does three things: it standardizes the decision process so your team isn't making judgment calls from scratch each time, it defines the monitoring triggers that tell you when a customer's risk has changed, and it gives sales a framework to work within rather than fight against.

The 7 Core Components of a B2B Credit Policy

1. Credit Application Requirements

Define what you require before extending credit. Minimum documentation: trade references, bank reference, years in business, tax ID. For larger limits, require financial statements. The bar should scale with the credit limit being requested — you don't need audited financials to approve a $2,000 net-30 account, but you do need them to approve a $200,000 open line.

Also define what happens when an application is incomplete. If your team is approving accounts based on half the information, document what threshold requires a follow-up request versus an automatic decline.

For a detailed breakdown of what belongs in the application itself, see our credit application form template.

2. Credit Limit Tiers and Authorization Levels

Break credit limits into tiers and assign approval authority to each tier. A credit analyst can approve limits up to $25,000. A credit manager approves up to $100,000. Anything above requires VP or CFO sign-off.

Document the criteria that move an account from one tier to another — what financials, payment history, or relationship tenure trigger eligibility for a higher limit. Without this, your credit team re-litigates the same conversations at every renewal.

3. Payment Terms by Customer Segment

Define standard terms (net 30 is most common in B2B), the conditions under which you offer extended terms (net 60, net 90), and the conditions that require cash-in-advance or cash-on-delivery. Not every customer earns the same terms. Your credit policy should define the criteria — not leave it to sales negotiation on a deal-by-deal basis.

For a deeper look at how terms affect cash flow and relationships, see our guide to trade credit and payment terms.

4. Credit Review Triggers

This is the section most credit policies skip. A credit review shouldn't only happen at onboarding or at annual review. Your policy should define the signals that trigger an immediate review:

• Invoice aged beyond 60 days
• NSF or returned payment
• Significant order increase (more than 50% above the established limit)
• Industry news: customer files a petition, announces layoffs, loses a major contract
• Change in ownership or key personnel
• Alert from a credit monitoring service flagging financial deterioration

Without defined triggers, the review only happens when someone remembers — or when the account already has a write-off problem. DSO is a trailing metric: by the time it's moving in the wrong direction, you've already missed the signal. The credit policy needs to define the forward-looking triggers that catch problems before they age into bad debt.

5. Collection Procedures and Escalation Path

Define the sequence: first dunning letter, second dunning letter, phone call, hold, attorney referral, collections agency. Specify the timeline between each step and who is responsible for each action.

Document what triggers each escalation level. "30 days past due gets a call" is more enforceable than "we call when it feels appropriate." For a detailed breakdown of what these communications should contain, see our guide to dunning letters.

6. Credit Holds and Exceptions

Define the conditions under which an order goes on hold: outstanding balance over X days, balance exceeding credit limit by Y percent, account flagged for review. Also define the exception process: who can release a hold, under what circumstances, and how the exception gets documented.

Exception management is where most credit policies break down in practice. If the VP of Sales can release any hold with a phone call, the policy is decorative. The policy needs to define the override path and require documentation so exceptions don't accumulate into a pattern of unenforced limits.

7. Credit Limit Reviews and Proactive Increases

A credit policy should work in both directions. Define the criteria under which a customer earns a proactive limit increase — consistent on-time payment over 12 months, order volume growth, improving financial position. Most credit teams treat this as reactive at best, leaving revenue on the table.

Customers who have earned a higher limit and don't know they can get one take their larger orders somewhere else. The same data your team uses to flag deteriorating risk can flag customers with untapped credit capacity. A credit policy that only functions as a gate misses half its value.

What Makes a Credit Policy Fail

The failure modes are predictable. The policy is too vague to apply consistently. It was written for a different business — different customer mix, different credit limits, different ERP — and no one updated it. The collection escalation steps are defined but the team doesn't follow them because exceptions pile up faster than the process can handle.

The less obvious failure: the policy treats credit as purely a risk management function. If your credit limit decisions are only about preventing losses, you're leaving customer expansion revenue to someone else. The credit team that understands both dimensions — risk and growth — becomes a revenue driver, not just a cost center.

A Working Template Structure

Here is a minimal structure you can adapt:

Section 1: Purpose and Scope — Who the policy applies to, what decisions it governs.

Section 2: Credit Application Requirements — What documents are required, by limit tier.

Section 3: Credit Limit Authority — Approval tiers and who has authority at each level.

Section 4: Standard Payment Terms — Default terms, conditions for extended terms, conditions for CAD/CIA.

Section 5: Monitoring and Review Triggers — Events that trigger a re-evaluation outside the annual review cycle.

Section 6: Collection Procedures — Step-by-step escalation with timelines and ownership.

Section 7: Credit Holds — Conditions, override process, documentation requirements.

Section 8: Limit Increases — Criteria for proactive increases and the review process.

When to Update Your Credit Policy

Review it annually at minimum. Trigger an off-cycle review when you enter a new customer segment, change ERP systems, go through a significant collections event, or experience meaningful change in your customer mix. If your DSO is climbing and the collection procedures aren't being followed, the policy needs tightening — not more relationship calls.

For a complete picture of how credit policy fits into the broader credit management workflow, see our credit management software overview and the guide to credit limit management for B2B teams.