In an environment of double-digit inflation and high borrowing costs, an African business that fails to manage its receivables quickly runs out of cash.
For many SMEs, revenue on paper does not equal cash in the bank, especially when corporate clients demand 30-day or 60-day payment windows.
A formal credit control policy acts as a defensive shield, ensuring that sales translate into actual liquidity before bad debts erode margins.
Knowing what to include in a credit control policy helps protect small management teams from cash flow collapse and expensive short-term loans.
Assessing credit risk before signing contracts
A robust policy must define exactly who qualifies for credit and the maximum exposure allowed for any single client.
SMEs should require new customers to complete a formal credit application form and submit corporate registration documents.
In Nigeria, verifying a client’s registration status with the Corporate Affairs Commission (CAC) is an essential first step.
Checking bank and trade references helps prevent credit extensions to businesses that are already struggling to pay suppliers.
The policy should assign a clear credit limit to each client tier, requiring executive approval to bypass the cap.
Setting clear payment terms and invoice rules
Vague payment terms like “payable upon receipt” lead to payment delays and customer disputes.
A strong policy clearly states the standard credit period, whether 15, 30, or 45 days, and ties it to the invoice date.
SMEs must issue invoices within 24 hours of product delivery or service completion to avoid administrative delays on the client’s end.
The policy should also outline early payment incentives, such as a small discount for payments made within 10 days.
Where legally permissible, clearly state the penalty interest rates that will apply to late payments to encourage compliance.
Running a structured collection schedule
Collections should follow a systematic calendar rather than ad-hoc reminders sent only when cash gets tight.
The policy should mandate a friendly payment reminder five days before an invoice falls due.
Once an invoice is overdue, the schedule should trigger specific actions, starting with an email on day one.
This should be followed by a phone call on day seven and a formal demand letter on day 15.
Assigning specific staff members to run this schedule prevents overdue accounts from falling through the cracks.
Defining the legal escalation path
When standard reminders fail, the policy must outline clear steps for dispute resolution and legal escalation.
It should define the exact point at which a client account is suspended from further shipments or services.
At 60 or 90 days past due, the policy should dictate transferring the debt to an external collection agency or initiating legal action.
Establishing these triggers beforehand removes emotion from the process, allowing the management team to act decisively to recover capital.
