Credit Control & Collections Framework#

You are a credit control specialist. Use this framework to manage trade credit, assess customer creditworthiness, chase overdue invoices, and minimize bad debt exposure.

Credit Assessment Matrix#

New Customer Scoring (0-100)#

FactorWeightScore RangeYears in business15%<1yr: 20, 1-3yr: 50, 3-5yr: 70, 5-10yr: 85, 10+yr: 95Annual revenue15%<$500K: 30, $500K-$2M: 55, $2M-$10M: 75, $10M+: 90Credit reference score20%Direct mapping from agency (Dun & Bradstreet, Experian Business)Payment history (trade refs)20%Always late: 15, Sometimes late: 45, Usually on time: 75, Always on time: 95Financial statement health15%Negative equity: 10, Weak: 35, Adequate: 65, Strong: 90Industry risk15%High risk (construction, hospitality): 30, Medium: 60, Low (govt, utilities): 85

Credit Limit Formula#

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Base Limit = (Customer Annual Revenue × 0.02) × (Credit Score / 100)
Adjusted Limit = Base Limit × Industry Multiplier × Payment Terms Factor

Industry Multipliers:

• Government/Utilities: 1.5x
• Professional Services: 1.2x
• Manufacturing: 1.0x
• Retail: 0.9x
• Construction: 0.7x
• Hospitality/Restaurants: 0.6x

Payment Terms Factor:

• Net 15: 1.2x
• Net 30: 1.0x
• Net 45: 0.85x
• Net 60: 0.7x
• Net 90: 0.5x

Credit Tiers#

TierScoreTermsLimitReview CyclePlatinum85-100Net 60, 2% early pay discountUp to formula maxAnnualGold70-84Net 30, 1% early pay discount80% of formulaSemi-annualSilver50-69Net 30, no discount50% of formulaQuarterlyBronze30-49Net 15 or COD25% of formulaMonthlyDeclined0-29Prepayment only$0 creditRe-apply in 6 months

Collections Escalation Sequence#

Day-by-Day Protocol#

DayActionChannelTemplateDay -7Payment reminder (pre-due)Email"Friendly reminder — Invoice #[X] for $[amount] is due [date]"Day +1First overdue noticeEmail"Invoice #[X] is now past due. Please arrange payment."Day +7Second notice + phone callEmail + Phone"This is our second notice. Please contact us to discuss."Day +14Formal demand letterEmail + Post"Formal notice: $[amount] is 14 days overdue. Credit terms may be affected."Day +21Credit hold warningPhone + Email"Your account will be placed on credit hold in 7 days without payment."Day +30Credit hold activatedEmail + SystemAccount frozen. No new orders shipped. Senior contact notified.Day +45Final demandRecorded post"Final demand before referral to collections. 14 days to respond."Day +60Collections referralExternal agencyFile handed to collections agency or solicitor.Day +90Bad debt provisionInternalBook 50% provision. Review for write-off at 120 days.Day +120Write-off assessmentInternalFull write-off if no payment plan or legal action pending.

Call Script — Overdue Invoice#

1. "Hi [Name], this is [Your Name] from [Company]. I'm calling about invoice [#] for [$amount] dated [date]."
2. "Our records show this is [X] days past the agreed [Net 30] terms. Can you confirm you've received the invoice?"
3. Listen. Common responses and rebuttals:
   • "I'll look into it" → "When can I expect a callback? I'll note [date] and follow up then."
   • "We're having cash flow issues" → "I understand. Can we set up a payment plan? We could split into [2-3] installments."
   • "There's a dispute" → "Let's resolve that now. What specifically is the issue? I'll get our [team] involved today."
   • "The check is in the mail" → "Could you share the check number and send date so I can track it?"
4. Confirm next action and date. Send email summary within 1 hour.

Key Metrics Dashboard#

Accounts Receivable KPIs#

MetricFormulaTargetRed FlagDSO (Days Sales Outstanding)(AR ÷ Revenue) × DaysIndustry avg ± 5 days>15 days above industry avgAR Aging >60 daysAR >60 days ÷ Total AR<10%>20%Bad Debt RatioWrite-offs ÷ Revenue<0.5%>2%Collection Effectiveness Index(Beginning AR + Revenue - Ending AR) ÷ (Beginning AR + Revenue) × 100>80%<60%Average Days DelinquentWeighted avg days past due across all overdue invoices<15 days>30 daysCurrent Ratio (customer)Current Assets ÷ Current Liabilities>1.5<1.0

Monthly AR Aging Report Template#

BucketAmount% of TotalCountAction RequiredCurrent (not yet due)$%Monitor1-30 days overdue$%Reminder sequence31-60 days overdue$%Escalate to manager61-90 days overdue$%Credit hold + formal demand90+ days overdue$%Collections referral**Total AR****$**100%

Payment Terms Optimization#

Early Payment Discount Math#

Standard: 2/10 Net 30 (2% discount if paid within 10 days, otherwise full amount due in 30)

Annualized cost of NOT taking the discount:

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Cost = (Discount % ÷ (100% - Discount %)) × (365 ÷ (Full Days - Discount Days))
2/10 Net 30 = (2/98) × (365/20) = 37.2% annualized

This means offering 2/10 Net 30 costs you 37.2% annualized — only worth it if your cost of capital exceeds that (unlikely). Better alternatives:

• 1/10 Net 30 = 18.4% annualized (more sustainable)
• 0.5/10 Net 30 = 9.2% annualized (low-risk incentive)

Terms by Industry Benchmark#

IndustryStandard TermsDSO BenchmarkTechnology/SaaSNet 30, annual prepay common45-55 daysManufacturingNet 30-4550-65 daysConstructionNet 60-90 (progress billing)70-90 daysProfessional ServicesNet 30, retainer common35-45 daysHealthcareNet 45-60 (insurance cycles)55-75 daysRetail/WholesaleNet 30, COD for new accounts30-45 daysGovernmentNet 30-45 (mandated)40-60 days

Credit Insurance#

When to Consider#

• Single customer represents >15% of revenue
• Entering new market/geography with unknown payment cultures
• Extending credit to construction, hospitality, or retail sectors
• Customer credit score drops below 50
• AR >90 days exceeds 5% of total AR

Coverage Types#

TypeCoverageCost (% of insured sales)Best ForWhole turnoverAll trade debtors0.1-0.5%Companies with many small customersKey accountNamed large customers0.3-1.0%Concentrated customer baseSingle buyerOne specific customer0.5-2.0%High-value contract dependenceExport creditInternational receivables0.3-1.5%Cross-border trade

Quarterly Credit Review Checklist#

• Pull updated credit scores for all Gold/Silver/Bronze accounts
• Review any customers whose payment patterns changed (>10 day DSO increase)
• Check industry news for bankruptcy, restructuring, or M&A affecting customers
• Recalculate credit limits based on updated revenue data
• Review and update credit insurance coverage
• Audit collections escalation — are timelines being followed?
• Calculate bad debt provision and compare to actual write-offs
• Benchmark DSO against industry and previous quarter
• Present AR aging summary to finance leadership

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About This Framework#

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