Why Every Business Needs a Credit Policy Review Every Year

When was the last time you actually looked at your credit policy? Not to update the logo on the template or nod along while the accounts department discusses it in a meeting, properly sat down and ask whether it still reflects you and how you do business. If the honest answer is an uncomfortable ‘a few years ago’, then you aren’t alone. Most businesses will write their credit policy once, file it away, and only remember it exists when something goes wrong. But the world your policy was written for has almost certainly moved on since then, and if your policy hasn’t moved with it, then it’s very quietly putting your cash flow and your bank balance at risk. 

Your Risk Landscape Doesn’t Stand Still

A credit policy is essentially just a set of assumptions. Which customers you’ll extend credit to, how much, on what terms, and what will happen if they don’t pay. The problem is those assumptions have a shelf life. The Insolvency Service’s own figures show 23,938 company insolvencies in England and Wales in 2025, which is broadly in line with the 2024 statistics and only slightly down on 2023’s 30-year high. The hardest hit industries have consistently been construction, retail, hospitality and manufacturing, and smaller companies are still disproportionately exposed. So if any of your customers sit in those sectors and you extended generous credit terms to them a few years ago, they don’t represent the same credit risk today. A policy that was sensible when you wrote it can become dangerously out of date simply because your customer base, your sector exposure or the wider economy has shifted underneath it. So doing an annual review isn’t just paperwork for the sake of it. It helps you make sure that the assumptions you made still match reality, and update it if they don’t.

The Rules are Changing Under You

It’s not just your customers and your business that change over time. The legal and regulatory backdrop to credit and late payments has been shifting too, and a policy written before these changes can leave you exposed or, just as often, leave money on the table that you’re not legally entitled to.

The Government’s 2025 Small Business plan is going to introduce what it describes as the toughest payment reforms in a generation, including:

• Cap most business-to-business payment terms at 60 days, with some peers already pushing for 45.
• Make interest on late payments mandatory, at 8% above the Bank of England base rate. Businesses can already claim statutory interest, but many small suppliers hesitate to do so, particularly where they rely on a much larger customer. Under the Bill, it would no longer be optional.
• Give the Small Business Commissioner stronger powers to investigate persistent poor payment practice, take enforcement action and adjudicate payment disputes outside the courts.
• Require the boards or audit committees of persistently late-paying large companies to explain publicly why their payment performance is poor and what they’re doing about it.

If your credit policy still reflects an ‘add interest if we feel like it’ approach rather than a clear, systemic approach to statutory interest and compensation, then you’re not using the tools that are now available to you. That’s a straightforward, no-cost win sitting inside an annual review.

What a Proper Review Actually Looks Like

A credit policy review doesn’t have to be some big undertaking that lasts for months, but it should also be more than just a quick read through of the policy. Set aside some time once a year to look at:

Credit limits – For each customer. Are they still appropriate for their current size, sector and payment history? Or are they based on how much business you did with them three years ago?

Payment terms – Standard terms should reflect your own cash flow needs and current market, not habits that were inherited from a previous owner or an old contract template.

Credit checking process – Are you actually running credit checks before extending terms to new customers? Are you rechecking existing ones periodically? Or has this quietly stopped happening as you’ve got busier?

Escalation triggers – At what point does late payment action move from a friendly reminder to a formal chase, and then to external recovery? If nobody in your business could answer that clearly and consistently, then your policy isn’t doing its job.

Sector and customer concentration – If a large proportion of your outstanding debt sits with one customer or one sector that’s now under pressure, your policy should be flagging that concentration risk before it becomes a bad debt.

Legal and legislative changes – As we mentioned above, things like statutory interest rights, reporting requirements and Small Business Commissioner power all move, and your policy should move with them.

Treat it Like an MOT, Not a One-Off

The businesses that get burned by bad debts are rarely the ones with no credit policy at all. They’re usually the ones with a policy that made sense once, but it’s since sat in a drawer and never been questioned or even looked at since. Doing a proper annual review costs you an afternoon, rather than the huge amount you could lose if you’re caught out by a customer whose risk profile changed years ago.

At Debtcol, we understand debtor behaviour and contract law inside out, and we help businesses of every size put credit control policies in place that actually protects their cash flow. Not just on paper, but in practice. If it’s time for your policy to catch up with reality, get in touch with our credit services team today.