Trade Credit Policy Template: A Practical Framework for B2B Teams

A trade credit policy tells your team how to evaluate new customers, set limits, manage existing accounts, and handle delinquency. Without one, each credit decision defaults to individual judgment, and individual judgment does not scale.

This template covers the core components of a working trade credit policy. Adapt the sections to fit your business, industry, and risk appetite.

Section 1: Purpose and scope

State the purpose of the policy and who it applies to. Example:

This policy governs the extension of trade credit to all commercial customers. It applies to the credit department, sales team, and any employee who participates in credit decisions or customer onboarding.

Define the credit approval threshold: the dollar amount above which credit requires formal review. A common starting point is $5,000 for new accounts, though this varies by industry and average transaction size.

Section 2: Credit application requirements

Every new customer requesting trade credit submits a credit application. The application captures:

• Legal business name and address
• Principal contacts
• Bank references (typically two)
• Trade references (typically three)
• Authorization to pull a commercial credit report

For larger accounts, require financial statements, at minimum the last two years of tax returns or audited financials, before approval. Your credit application process is the first control in your credit program. A poorly designed application creates gaps that show up as bad debt later.

Section 3: Credit evaluation criteria

Specify what factors the credit team uses to approve, decline, or conditionally approve a request.

Payment history. Trade references and payment databases show how a customer pays other vendors. Chronic late payment on small balances predicts slow payment on your balances.

Financial condition. For accounts above your threshold, review current ratio, debt-to-equity, and operating cash flow. A customer with high revenue but thin liquidity carries more risk than their sales volume suggests.

Business tenure. Companies under two years old carry more risk. Your policy should specify whether you extend credit to startups and under what conditions.

Credit score. Commercial credit scores from bureaus provide a starting benchmark, but they lag real conditions. Combine bureau data with trade references for a current picture.

Industry and geography. A construction subcontractor in a slow-paying region is a different risk profile than a national distributor. Your policy should call out industries or markets where you apply tighter criteria.

For a deeper look at how to apply these factors, see how to set credit limits for B2B customers.

Section 4: Credit limits

Your policy should specify how credit limits are calculated, not just state that limits are assigned. A workable formula:

Initial credit limit = (Monthly estimated purchases x credit term in months) x risk adjustment factor

The risk adjustment factor reflects the customer's risk profile. A strong customer might get a factor of 1.0 to 1.2; a marginal customer gets 0.5 to 0.7.

Set a review trigger: any account where the outstanding balance consistently reaches 80% or more of the credit limit warrants a limit review. This catches growing accounts before they become a collections problem.

Document the approval authority matrix clearly. Credit analysts approve limits up to $10,000. Credit managers approve $10,001 to $50,000. The CFO or VP Finance approves anything above $50,000.

Section 5: Payment terms

List the standard terms your company offers and the conditions under which non-standard terms are granted.

• Standard terms (Net 30, Net 60)
• Early payment discount terms (2/10 Net 30)
• Conditions for extended terms
• Who can approve non-standard terms

Sales should not negotiate payment terms without credit approval. This is a consistent source of bad debt in companies that skip this control.

Section 6: Account monitoring and review

Credit decisions are not permanent. Define how often active accounts are reviewed:

• Annual review for all accounts above $25,000 in annual purchases
• Triggered review if the customer's balance exceeds their limit, payment behavior changes, or a credit bureau alert fires
• Immediate review upon notice of bankruptcy, change of ownership, or significant financial news

Trade credit management is an ongoing process. The credit team's job does not end at approval.

Section 7: Collections and escalation

Define the collections process in sequence:

1. Day 31 (first day past due): Automated reminder sent
2. Day 45: Collector outreach by phone or email
3. Day 60: Credit hold placed on new orders
4. Day 90: Account escalated to collections manager
5. Day 120: Third-party collections or legal referral

Specify who owns each step and what documentation is required before escalation.

Section 8: Exceptions

Every policy has exceptions. Document the process for granting them: who can approve, what justification is required, and how exceptions are tracked. Without a formal exceptions log, exceptions become the rule.

Putting the policy to work

A trade credit policy only works if the credit team enforces it consistently and leadership backs that enforcement. Review it annually, update it when your customer mix or risk appetite changes, and use it as the training document for new hires.

For the full context on how this policy fits into a broader credit program, the trade credit management guide covers strategy, process, and tooling in depth. If you are evaluating credit decisioning software to automate parts of this policy, that post covers what to look for.