How to Build a B2B Credit Policy That Prevents Late Payments
Most SMBs extend credit with no formal policy. Then they spend hours every week chasing payments. Here's how to vet customers before the invoice is late.
A new client signs. You're excited about the project. They ask for Net-30 terms. You say yes without thinking twice.
Six weeks later, you're chasing a 15,000 euro invoice that was due two weeks ago. The client is "working on it." Meanwhile, you need to cover payroll on Friday.
This happens because most B2B businesses extend credit based on instinct. The client seems legitimate, the project is real, and asking for payment upfront feels awkward when everyone else in your industry offers terms. But "seems legitimate" is not a credit policy. And more than half of B2B invoices in the US are paid late.
What a credit policy actually is
A credit policy is a set of rules that determine who gets payment terms, what terms they get, and what happens when they don't pay. That's it. It doesn't need to be a 30-page document. For most SMBs, it's one page that answers three questions:
- How do we decide whether to offer a new customer credit?
- What payment terms does each customer get?
- What's our process when an invoice goes past due?
If you can't answer all three right now, you don't have a credit policy. You're extending credit on gut feeling. And that's how bad debt happens.
Why most SMBs skip this step
Let's be honest about why credit policies are rare in small businesses.
First, it feels like overkill. When you have 20 customers, a formal policy seems like something for companies with finance departments.
Second, it feels adversarial. Running a credit check on a new client can seem like you're questioning their integrity before the relationship starts.
Third, nobody teaches you how. Business school covers finance theory. It doesn't cover "how to politely ask a new customer to fill out a credit application before you start work."
But here's what happens without one: bad debts average several percent of B2B invoiced sales. On a business doing 500,000 euros in annual revenue, that's 25,000 to 40,000 euros invoiced and never collected. Not late. Never paid.
The credit check: simpler than you think
You don't need a finance department to evaluate a customer's creditworthiness. For most B2B SMBs, a basic credit check involves three things.
A credit application form. Before extending terms, ask the customer to fill out a simple form: legal business name, registration number, two or three trade references (other suppliers they pay on time), bank reference, and the name of their accounts payable contact.
This form serves two purposes. It gives you data to verify. And it signals that you take payment seriously. Customers who balk at a one-page application are telling you something.
A business credit report. Services like Dun & Bradstreet, Experian Business, and Equifax offer credit reports on registered businesses. These include a credit score, payment history with other suppliers, and public filings like judgments or liens. A single report typically costs 20 to 50 euros. That's a fraction of the cost of one unpaid invoice.
Trade reference checks. Call the references the customer provided and ask two questions: how long have they been a customer, and do they pay on time? If two out of three references report consistent late payments, that's your answer.
Tiered terms: the framework that changes everything
The biggest practical improvement most businesses can make is moving from "everyone gets Net-30" to tiered payment terms based on risk.
New customers with no payment history: Net-15, or payment on delivery. Some businesses require 50% upfront for first-time clients. This isn't unusual. It's standard practice in construction, wholesale, and staffing.
Established customers with consistent on-time payment: Net-30. This is the standard B2B term, earned through demonstrated reliability.
High-volume, long-term customers with excellent track records: Net-45 or Net-60. Extended terms are a privilege, not a default. Reserve them for customers who have earned the trust.
Customers with poor credit or a history of late payment: Cash on delivery or payment in advance. No exceptions. An honest conversation upfront is better than chasing an invoice for 90 days.
The key insight: payment terms are a business tool, not a fixed industry standard. The customer worth 200,000 euros a year who pays on day 28 every time has earned different terms than the customer who placed their first order last month.
Credit limits: how much exposure is too much
Every customer should have a credit limit, even your best ones. A credit limit is the maximum outstanding balance you'll allow before pausing new work or shipments.
A simple formula: set the credit limit at the average monthly order value times two. If a customer typically orders 10,000 euros per month, their credit limit is 20,000 euros. If their outstanding balance hits that number, no new orders ship until payment is received.
This protects you from the scenario where a good customer's business deteriorates and your exposure grows without you noticing. By the time the invoices stop getting paid, you're not owed 10,000 euros. You're owed 60,000.
What happens when someone doesn't pay
Your credit policy needs an escalation process. Not because you want to be aggressive, but because ambiguity is the enemy of cash flow.
A simple escalation timeline:
- Day 1 past due: Automated payment reminder
- Day 7: Phone call. Friendly, fact-finding. Is there an issue with the invoice?
- Day 14: Second call. More direct. Request a specific payment date.
- Day 30: Formal written notice referencing your payment terms and late payment policy
- Day 45: Credit hold. No new orders or work until the balance is resolved.
- Day 60: Final notice with a deadline before external collection
- Day 90+: Decision point. Payment plan, collection agency, or write-off based on the amount and circumstances.
The important thing is that this process exists before you need it. When an invoice goes overdue, you shouldn't be improvising. You should be following the process.
The conversation new customers actually respect
Business owners worry that a credit policy will scare off clients. The opposite is true. Professional customers expect it.
When onboarding a new customer, the conversation sounds like this: "Before we get started, I'll send over our standard credit application. It's quick, one page. We do this with all new accounts. Once that's processed, we'll set up your payment terms and you're good to go."
That's it. No awkwardness. No apology. Just a professional process.
Customers who push back hard on a basic credit application are exactly the ones you should be vetting more carefully, not less.
The credit policy prevents problems. Dunwise handles the rest.
A credit policy reduces your exposure to bad debt. It ensures you're extending terms to customers who are likely to pay. It creates a framework for consistent escalation when things go overdue.
But even with the best credit policy, invoices still go past due. Good customers hit temporary cash flow gaps. Administrative processes stall. Approvals get stuck.
That's where Dunwise picks up. Your credit policy decides who gets terms. Dunwise makes sure those terms get honored. The agent follows your escalation timeline automatically: the friendly check-in at 7 days, the direct conversation at 30, the formal notice at 60. Every invoice, every stage, every time.
Prevention and follow-through. One stops bad debt from building up. The other makes sure good customers pay on time.
Want to see how it works together? Book a demo and experience a Dunwise collection call yourself.