Businesses providing credit need a strong Credit Policy

Many businesses focus heavily on sales growth but overlook the risks of extending credit without structure. Operating without a clear credit policy or a formal credit application process can expose a business to significant financial and operational pitfalls.

One of the most immediate risks is inconsistent decision making. Without a policy, credit is often granted based on instinct or pressure to close a sale, rather than objective criteria. This can lead to high risk customers being approved without proper checks, increasing the likelihood of late payments or defaults.

The absence of a credit application form further compounds this issue. Without collecting key information such as legal business details, trade references, or director guarantees businesses lack the data needed to properly assess creditworthiness. It also weakens their legal position if debts need to be recovered, as there may be no signed agreement to enforce.

Another major pitfall is poor cash flow management. Uncontrolled credit can quickly result in overdue accounts, tying up working capital and limiting the ability to reinvest in operations.

Ultimately, not having these structures in place shifts control from the business to the customer. What may start as a convenience can quickly turn into financial strain, highlighting the importance of disciplined credit management practices.

At TCS, we encourage our clients to implement strong credit policies and well structured credit applications. Our Business Relationship manager Katrina de Kaste is available to discuss any aspect of your credit policy so please contact her on 0499 556 643 if you’d like further information.