In one sentence
Credit control is the set of decisions that determine who a business sells to on credit, on what terms, up to what limit, and what happens when the customer is late.
Key takeaways
- Credit control is the set of decisions that determine who you sell to on credit, on what terms, up to what limit, and what happens when they are late.
- Most mid-market businesses have terms but no limits, and limits but no consequence. The consequence is the control.
- Collection should not sit with the person who sells. The conflict of interest is structural, not personal.
- An escalation ladder with named owners and dates is worth more than a credit policy document nobody reads.
What credit control is
Credit control is everything between deciding to sell on credit and receiving the cash: who gets credit, how much, on what terms, how the account is monitored, and what happens when it goes late. It is a set of decisions, not a department. In a business without it, sales decides who gets credit, accounts discovers the consequences, and nobody owns the middle.
Credit control measures: terms and limits
Terms are how long a customer has to pay; limits are how much they can owe you at once. Most mid-market businesses have terms — 30, 45, 60 days — and no limits, which means a customer who is late can keep ordering and the exposure grows while the problem is discussed. A limit set from the customer's payment history and your appetite, enforced by a credit block on new orders when it is crossed, is the single most effective control there is. It is also the one most businesses resist, because sales objects. Sales objects because the block works.
Assessing a new customer
Before extending credit: the entity's registration and filings, trade references from other suppliers, and — where the exposure justifies it — a commercial credit report. Set the first limit low and raise it on payment behaviour. The cheapest bad debt is the one you never extended.
Who owns collection
Not the salesperson. The person who needs next month's order cannot press for last month's payment, and when target pressure peaks collection calls are the first thing dropped. Collection needs an owner whose only job it is — in-house if the book is large enough, or a deployed specialist if it is not. The salesperson's role is to be held to the promises their customer makes, not to extract them.
The escalation ladder — the method of credit control that works
A ladder is a written sequence of what happens at each point after due date, with a named owner and a date for each step:
- Due date + 1: statement and a call from the collection owner, not a template email.
- +7: promise to pay recorded with a date; disputes logged with an owner.
- +15: broken promise escalated to the salesperson's manager; credit block considered.
- +30: credit block applied; management view; formal reminder in writing.
- +60: the account moves to third-party recovery with its file — promises, disputes, delivery proof — attached.
- +90: legal notice, if the case supports it.
The dates are illustrative; the principle is not. A ladder that everyone knows exists changes the customer's behaviour before step one, because the consequence is visible.
Disputes
An unresolved dispute is the most common reason an invoice stays unpaid for a year. Every dispute needs a named owner and a visible age. Resolve it, credit it, or escalate it — never park it. See the DSO guide on how disputes distort the number.
Sources and regulation
| Instrument | What it does | Source |
|---|---|---|
| Indian Contract Act, 1872 | Credit terms are contract terms; breach makes the debt claimable | indiacode.nic.in |
| MSMED Act, 2006 — Section 15–16 | Where the supplier is a registered MSME, payment is due within 45 days and interest accrues on delay | msme.gov.in |
| Limitation Act, 1963 | Three years, generally, to bring a claim for money due on account — the ladder must end before the clock does | indiacode.nic.in |
Thresholds, limitation periods and procedures change. This guide describes the position as generally understood at the time of writing and is not legal advice; confirm the current rule before acting.
If this is your situation: you have terms but no limits, and limits but no consequence.
The DSO Reduction Programme