Extending credit is a financing decision. In most small businesses it is made by a salesperson who wants the order, with no reference to how much that customer already owes.
That is how a business ends up with its largest receivable concentrated in its least reliable customer.
What a policy needs to cover
Who gets credit at all. New customers on advance or part-advance for the first few orders is a perfectly normal position, and far easier to state upfront than to introduce later.
How much. A credit limit per customer, based on what you can afford to lose rather than what they ask for.
For how long. Net 15, 30, 45, stated on the invoice, not assumed.
What happens when it is exceeded. This is the part everyone skips, and the only part that matters when it is tested.
Check the limit at the point of sale
A credit limit nobody checks is a note in a file. The check has to happen when the next order is taken, because that is the only moment it can change anything.
The uncomfortable version of this: a customer who has crossed their limit should not get more work until something is paid. That is a hard conversation, and it is far easier when you can point to a policy rather than appearing to single them out.
Review limits as relationships change
A customer who has paid reliably for two years has earned more room. One who has slipped repeatedly has earned less. Limits set once and never revisited stop reflecting reality quickly.
Write it down, tell the team
A policy in the owner's head is not a policy. Two paragraphs, shared with everyone who takes orders, prevents most of the situations where someone extends credit they had no authority to extend, usually with the best intentions.
The point of all this
Not to be rigid with customers. It is to make sure the decision to lend your money is a deliberate one, made with the full picture, rather than an accident of who happened to answer the phone.
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