5 Signs Your Business Needs a Credit Management Policy (And How to Build One)

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Introduction

Most UAE businesses know they should have a credit management policy — but surprisingly few actually do. Without one, your finance team is making inconsistent decisions, your sales team may be extending credit to high-risk clients, and your cash flow is more vulnerable than it needs to be. Here are five clear signs that your business needs a formal credit management policy, and what to do about it.

Sign 1: You Have No Standard Credit Application Process

If your business extends credit to clients without a formal credit application — including company details, bank references, trade references, and signed terms — you are operating without a safety net. A credit application form is the first line of defence against bad debt, and it is also legally important if you ever need to pursue a debt through the courts.

Sign 2: Your DSO Is Creeping Upward

Days Sales Outstanding (DSO) is the average number of days it takes to collect payment after a sale. If your DSO has been increasing over time, it is a sign that your payment culture is drifting in the wrong direction. A strong credit management policy, consistently enforced, is the most effective way to arrest this trend and bring your DSO back under control.

Sign 3: Different Clients Get Different Treatment

When payment terms and credit limits vary from client to client based on personal relationships rather than risk assessment, your exposure is uncontrolled. Consistent credit policies protect your business by ensuring all clients are assessed and managed according to the same objective criteria — regardless of who brought them in or how long you have known them.

Sign 4: Your Sales Team Is Driving Credit Decisions

Sales teams are incentivised to close deals, not to protect cash flow. When salespeople make credit decisions — or pressure finance teams to approve credit for high-risk clients — it creates a conflict of interest that almost always ends badly. A credit management policy clearly separates sales and credit approval functions.

Sign 5: Bad Debt Is Normalised in Your Business

If writing off bad debts has become a routine part of your annual accounts rather than an exceptional event, something is fundamentally wrong with your credit management approach. Some bad debt is unavoidable, but high or growing write-offs are a clear signal that your credit controls need strengthening.

How to Build a Credit Management Policy

A good credit management policy covers credit application and approval procedures, credit limits by client tier and risk profile, payment terms and escalation processes for overdue accounts, a clear collections procedure with defined timelines, and regular

review of the debtor ledger. CMS offers Credit Consulting services to help UAE businesses design and implement policies that are both practical and effective.

Andy Yiacoumi (MCICM)Founder & Managing Director

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