For this type of business, a credit policy is a low priority, and for good reason. Many businesses rarely extend credit, and require payment immediately upon purchase. When it’s broken down into its component parts, it establishes how risk averse a company is vis-a-vis extensions of credit and other monetary policies with respect to accounts receivable. Outline the steps or procedures used to deal with delinquent accounts.Define the limits to be set on outstanding credit accounts.Set the payment terms for parties to whom credit is extended.Determine which customers are extended credit and billed.Simply put, a credit policy is a set of guidelines that sets credit and payment terms for customers and establishes a clear course of action for late payments.Ī good policy will generally do four things: How to Write a Credit Policy for Construction.Why construction businesses need a credit policy.For example, somebody can inspect the shipment before the payment is released. If the buyer is concerned about a dishonest seller, there are additional options available for the buyer’s protection.In some ways, the buyer also enjoys protection under a letter of credit: Buyers might prefer to pay a bank with a big legal department rather than send the money directly to an unknown seller.

To do so, the seller typically provides documents showing how goods were shipped (with details like the exact dates, destination, and contents).

The bank will only release funds to the seller after the seller proves that the shipment happened.The buyer may need to have funds on hand at that bank or get approval for financing from the bank.

To move forward, the buyer needs to apply for a letter of credit at a bank in their home country.

To manage risk, the seller uses an agreement that requires the buyer to pay with a letter of credit as soon as shipment is made.

The manufacturer has no way of knowing if this customer can (or will) pay for the goods after producing and shipping the products.

A manufacturer receives an order from a new customer overseas.

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