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Debt Collection Policy check list

Debt Collection Policy check list – improve profit and cashflow

Cash flow problems are responsible for causing over 70% of businesses to fail within their first year. It would be fair to say, few if any, had a debt collection policy check list.

Consequently, it is the main reason for business failure. Therefore, a robust Debt Collection Policy Check List is an essential part of any business. Maintaining consistent cash flow, avoiding bad debt and minimizing late payments are essential for survival. Use the following checklist to set up a system.

Credit Application / Approval

  • Is a written application required with every credit request?
  • Do you have a standard form for credit applications?
  • Is it completed personally by the applicant?
  • Is it reviewed for completeness?
  • Is all information verified for accuracy and timeliness?

Terms of Trade / Conditions of Sale

  • Are your T&C more than 3 years old?
  • Have they been written purposely for your company?
  • Were they written by a specialist Credit Lawyer?
  • Do you offer a cash discount?
  • Do you use a late payment penalty?
  • Is the time limit for payment clearly stated?
  • Make sure that your customer’s order does not suggest different payment terms

For more on Terms and Conditions

Know your customer

  • Are applicants checked out with a credit bureau?
  • Do you know the legal name and structure of the customer?
  • Does your evaluation consider income?
  • Does your evaluation consider fixed obligations?
  • Does your evaluation consider job stability?
  • Does your evaluation consider residential stability?
  • Does your evaluation consider credit history?
  • Does your evaluation consider bank balances?
  • Does your evaluation consider other assets?

Invoices / Statements

  • Are invoices prepared and delivered promptly?
  • Is invoice preparation always accurate?
  • Are payment terms clearly stated?
  • Are customers’ special instructions followed carefully?
  • Are Statements sent within 5 days of month end?
  • Are monthly statements submitted to all open accounts?
  • Are statements prompt and accurate?

Periodical Credit Review

  • Do you determine your average collection period on a regular basis?
  • Do you compare your collection period with industry averages?
  • Do you compare your current collection period with your previous experience?
  • Do you compare your collection period with your payment terms?
  • Do you have a monthly aging of all outstanding accounts?
  • When a problem is identified, is corrective action prompt and firm?


  • Do you have a systematic procedure for follow-up on slow accounts?
  • Is there a standard sequence of follow-up letters?
  • Is the tone of these letters progressively stronger?
  • Do you use the telephone to contact delinquent accounts?
  • Is your telephone technique effective?
  • Do you offer special arrangements for collecting past-due accounts?
  • Do you have a late-payment penalty?
  • Do you put delinquent accounts on a C.O.D. basis?

External Resources

  • Do you have a working relationship with a collection agency?
  • Are accounts turned over automatically after a specific time period?
  • Do you refer the most serious delinquencies to a specialist Credit Lawyer?


Sound policies for credit and collection can eliminate many problems before they occur and minimize those that do occur. If you implement and maintain a Debt Collection Policy Check List your profit will improve and your cash position will be strengthened. Profit will improve through fewer credit losses and lower costs of credit administration. Capital will be freed so that you will be able to meet your own obligations promptly and invest in those assets that offer a significant profit potential.

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