What is credit control? It is the set of checks, terms, and chasing steps a business applies before, at, and just after it supplies, so unpaid invoices never become a…
What is credit control? It is the set of checks, terms, and chasing steps a business applies before, at, and just after it supplies, so unpaid invoices never become a recovery file. Credit control best practice is that process written down and followed. Done well, credit control procedures cost less than a letter before action. Done badly, you fund someone else's cash flow until the relationship is already over.
This guide is for suppliers in England and Wales who want a credit control policy they can actually run. It is prevention. If the invoice is already stale, use our unpaid invoice recovery guide rather than dressing enforcement up as "a friendly reminder".
What is credit control?
Credit control is the process of deciding who you will supply on account, on what terms, and how you will collect on time. A credit control process usually has four stages:
1. Assess the customer before you give terms. 2. Put the terms in writing and get them accepted. 3. Invoice cleanly, on time, with a named due date. 4. Chase on a fixed timetable, then escalate.
That is the credit control meaning that matters in a tribunal or a court file later: you can show you were consistent. "We sometimes let it drift" is how disputed debts start.
A written credit control policy tells staff who can grant credit, who can extend it, and when a job pauses. It also tells a judge you did not ambush the debtor with interest and costs they never agreed.
Credit control procedures that prevent debt
Check before you supply. For a new account, take a signed credit application, verify the legal name (limited company, LLP, sole trader), and record a registered office or trading address you can serve. Companies House is free. A credit report is not a legal requirement, but it is a reason you can later explain. For larger limits, ask for a personal guarantee from directors, in a properly executed document, before goods go out.
Make the contract the invoice's parent. Payment terms on an invoice only help if they formed part of the contract. Put your terms on the quote, the order acknowledgement, and the onboarding pack, and get a signed acceptance. "Payment 14 days from invoice date" is clearer than "payment 14 days". State that you may claim interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998 on qualifying commercial debts. Then, if you later claim, you are not inventing the right in week twelve. The detail of rates and compensation is in our note on debt recovery interest under the Late Payment Act.
Invoice so there is nothing to argue about. Purchase order number, description, quantity, price, VAT, due date, and how to pay. Send it the day you are entitled to. A credit control system (even a simple aged-debtor report) beats a pile of sent emails nobody owns.
Chase on a clock, not a mood. A typical credit control process is: reminder on the due date or the day after; a chasing call at seven days; a formal chase at fourteen; a final notice that names the next step at twenty-one or thirty. Put the timetable in the policy so one salesperson cannot quietly extend terms for a favourite account while another is instructed to sue.
Stop supply when the policy says so. Continuing to deliver while a customer is already outside terms is how a manageable invoice becomes a winding-up file. Write the stop-supply trigger down, and tell the sales team it is not optional.
Sole traders and partnerships need the individual's name as well as any trading style. Serving "the shop" is not serving the debtor. For limited companies, record the company number. If you later need a statutory demand or a winding-up petition, the wrong defendant wastes months. Credit control procedures that capture the legal person at onboarding are cheaper than amending a claim.
Deposits, staged payments, and retention of title clauses belong in the same pack as the credit limit. Retention of title only helps if it is in the contract and you can still identify the goods. It is not a substitute for credit control, and it is a poor surprise to spring after insolvency.
Credit control policy: what to put on one page
A usable credit control policy does not need a handbook's worth of prose. It should name:
- Who owns credit control (role, not a first name that leaves with the employee).
- Maximum credit limits, and who may exceed them.
- Required documents before an account is opened.
- Standard payment terms, and when deposits are required.
- The chasing timetable, including when work stops.
- When interest and late payment compensation will be applied.
- When the file leaves credit control and goes to a solicitor.
Outsourced credit control and a credit control system can sit inside that policy. They do not replace it. If you outsource chasing, keep the stop-supply decision and the decision to instruct solicitors in-house.
Late payment of commercial debts as a deterrent, not a surprise
The Late Payment of Commercial Debts (Interest) Act 1998, as supplemented by later regulations, lets a supplier in a business-to-business contract claim statutory interest and a fixed sum if a qualifying debt is paid late, unless a different substantial contractual remedy has been agreed. The phrase "late payment of commercial debts" is worth putting in your terms because it is what credit controllers and courts already recognise.
Use it twice: once in the terms, so the customer saw it, and once in the final notice, so the file shows you warned them. Do not leave the first mention to the claim form.
For consumers, different rules apply. This article is written for commercial supply. Mixing consumer and business accounts in one chasing script is how you breach the wrong protocol.
When prevention ends and recovery starts
Credit control best practice includes a clean hand-off. Once the policy's final date has passed, send a letter before action that meets the right pre-action protocol, then issue if you mean it. Chasing for another three months "to keep the relationship" usually trains the debtor that your dates are decorative.
Keep the credit file: application, signed terms, delivery notes, invoices, chasing log, and any dispute. That pack is what commercial debt recovery is built on. Without it, you are reconstructing a contract from memory.
FAQs
Do we need a credit control policy if we only have a few customers?
Yes, especially then. Small ledgers go wrong because one person "knows" the customer. Write the rules down so holiday cover does not reset the clock.
Is interest automatic if we never mentioned the 1998 Act?
On many commercial contracts the statutory right can still apply, but you will argue about it. Putting it in the terms is cheaper than arguing.
Should we keep supplying while we chase?
Only if the policy allows it. Unpaid work on top of unpaid work is not goodwill. It is unsecured credit you did not underwrite.
What to do next
Write the credit control policy, attach it to the terms you actually use, and run the timetable for thirty days without exceptions. If the aged list is already long, split it: new invoices follow the policy; old invoices go into recovery. Blackstone can review the terms, the final notice, and the point at which a solicitor's letter should go out.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
