Credit Management Procedures

Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: CFO, Controller, Credit Manager, Sales/BD

Purpose

Establish procedures for evaluating customer credit risk, setting credit limits, and managing credit exposure to minimize bad debt while supporting sales growth.

Why Credit Management Matters

Construction Credit Reality:

You're essentially financing your customers
Work performed before payment received
Retainage extends exposure
Single bad debt can eliminate profit from multiple jobs
Lien rights help but don't guarantee payment

Benefits of Formal Credit Management:

Reduced bad debt
Faster collections
Better customer selection
Informed go/no-go decisions
Protected cash flow

Credit Evaluation Process

Step 1: Customer Credit Application

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         CREDIT APPLICATION
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COMPANY INFORMATION:

Legal name: ___________________________________________________
DBA: _________________________________________________________
Address: _____________________________________________________
City/State/ZIP: ______________________________________________
Phone: _______________________  Fax: _________________________
Website: _____________________________________________________

Type of business: ☐ Corporation  ☐ LLC  ☐ Partnership  ☐ Individual
State of incorporation: _______________________________________
Years in business: _____
Federal Tax ID: ______________________________________________

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PRINCIPALS/OWNERS:

| Name | Title | % Ownership | SSN (for personal guarantee) |
|------|-------|-------------|------------------------------|
|      |       |             |                              |
|      |       |             |                              |

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FINANCIAL INFORMATION:

Annual revenue: $___________________
Number of employees: ________________
Primary bank: _______________________
Account #: _________________________
Contact: ___________________________

Bonding company: ____________________
Agent: _____________________________
Bonding capacity: $__________________

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TRADE REFERENCES (Minimum 3):

1. Company: ________________________  Phone: __________________
   Contact: ________________________  Account since: __________
   
2. Company: ________________________  Phone: __________________
   Contact: ________________________  Account since: __________
   
3. Company: ________________________  Phone: __________________
   Contact: ________________________  Account since: __________

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PROJECT INFORMATION:

Requested credit limit: $_______________
Anticipated annual volume: $_____________
Typical project size: $________________
Payment terms requested: _______________

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AUTHORIZATION:

I authorize [Company] to obtain credit information about the
above-named company from the references listed, credit reporting
agencies, and other sources.

Signature: _________________________  Date: __________________
Printed name: _______________________  Title: ________________

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Step 2: Credit Investigation

Information Sources:

Source	Information	Cost
Trade references	Payment history	Free
Bank reference	Account standing	Free
D&B report	Credit score, financials	$$
Public records	Liens, judgments, UCC	$
Secretary of State	Corporate standing	$
Contractor license	License status	Free
Construction reports	Payment history	$$

Step 3: Credit Scoring

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         CREDIT EVALUATION WORKSHEET
================================================================

Customer: _______________________  Date: ____________________

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FACTOR 1: FINANCIAL STRENGTH (30 points max)

D&B rating or equivalent:
☐ Strong (1-2) = 30 points
☐ Good (3) = 25 points
☐ Fair (4) = 15 points
☐ Limited (5) = 5 points
☐ Unable to determine = 0 points

Score: _____

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FACTOR 2: PAYMENT HISTORY (30 points max)

Trade reference average:
☐ Pays early/on time = 30 points
☐ Pays 1-15 days slow = 20 points
☐ Pays 16-30 days slow = 10 points
☐ Pays 30+ days slow = 0 points
☐ No history = 5 points

Score: _____

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FACTOR 3: TIME IN BUSINESS (15 points max)

☐ 10+ years = 15 points
☐ 5-10 years = 12 points
☐ 3-5 years = 8 points
☐ 1-3 years = 4 points
☐ Less than 1 year = 0 points

Score: _____

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FACTOR 4: BONDING/FINANCIAL BACKING (15 points max)

☐ Bonded with reputable surety = 15 points
☐ Strong parent company guarantee = 15 points
☐ Bank letter of credit available = 12 points
☐ Adequate capitalization = 10 points
☐ Limited financial backing = 5 points
☐ Weak or unknown = 0 points

Score: _____

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FACTOR 5: PUBLIC RECORDS (10 points max)

☐ Clean record = 10 points
☐ Minor issues (resolved) = 5 points
☐ Active liens/judgments = 0 points
☐ Bankruptcy history = -10 points

Score: _____

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TOTAL SCORE: _____ / 100

RATING:
☐ 80-100: Excellent - Standard terms, high limit
☐ 60-79: Good - Standard terms, moderate limit
☐ 40-59: Fair - Modified terms, lower limit
☐ Below 40: Poor - COD or secured payment

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Credit Limits

Setting Limits:

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         CREDIT LIMIT DETERMINATION
================================================================

Customer: _______________________  
Credit Score: _____

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LIMIT GUIDELINES:

Based on credit score:
| Score | Limit Range |
|-------|-------------|
| 80-100 | Up to 10% of their annual revenue |
| 60-79 | Up to 5% of their annual revenue |
| 40-59 | Up to 2% of their annual revenue |
| Below 40 | COD or secured terms |

Customer annual revenue: $_________________
Guideline limit: $_________________

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ADDITIONAL CONSIDERATIONS:

Our exposure tolerance: $_________________
Anticipated project size: $_________________
Lien rights available: ☐ Yes  ☐ No

Adjustments:
+ Bonded projects: May exceed limit with bond
+ Lien rights: May exceed limit with proper notices
- High concentration: May reduce for risk
- Multiple projects: Consider total exposure

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APPROVED CREDIT LIMIT: $_________________

Approved by: _______________________  Date: __________________

Review date: _______________________

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Credit Limit Matrix:

Credit Score	Max % of Customer Revenue	Payment Terms
80-100	10%	Net 30
60-79	5%	Net 30
40-59	2%	Net 15 or secured
under 40	0%	COD

Credit Monitoring

Customer Credit Review:

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         CREDIT REVIEW
================================================================

Customer: _______________________  Review Date: _______________

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CURRENT CREDIT STATUS:

Current limit: $_________________
Current exposure: $_________________
Available credit: $_________________
High balance (12 months): $_________________

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PAYMENT PERFORMANCE:

Current A/R: $_________________
Past due: $_________________
Average days to pay (12 months): _____
Disputes: ☐ None  ☐ Yes (document)

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EXTERNAL CHANGES:

D&B or credit report changes: ☐ Yes  ☐ No  ☐ Not checked
Public record changes: ☐ Yes  ☐ No  ☐ Not checked
Known business changes: _________________________________

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RECOMMENDATION:

☐ Maintain current limit
☐ Increase limit to $_________________
☐ Decrease limit to $_________________
☐ Convert to COD
☐ Suspend credit

Rationale:
___________________________________________________________

Reviewed by: _______________________  Date: __________________

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Review Frequency:

Customer Type	Review Frequency
High exposure (over $100K)	Quarterly
Medium exposure ($25K-$100K)	Semi-annually
Low exposure (under $25K)	Annually
Problem accounts	Monthly

Credit Holds

Hold Triggers:

Trigger	Action
Past due over 30 days	Credit hold
Over credit limit	Credit hold
NSF check	Credit hold
Adverse credit information	Review
Customer request for extended terms	Review

Hold Process:

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         CREDIT HOLD NOTIFICATION
================================================================

Date: _______________

Customer: _______________________
Account #: _____________________

Current status:
☐ Past due balance: $_________________
☐ Over credit limit by: $_________________
☐ NSF check: $_________________
☐ Other: _______________________________

ACTION REQUIRED:

☐ Payment of $_________________ required before release
☐ Credit limit increase required (pending approval)
☐ Personal guarantee required
☐ Other: _______________________________

Impact:
- No new orders will be processed
- Existing orders may be held
- Collections activity will begin

Contact: _______________________  Phone: ____________________

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Personal Guarantees

When to Require:

New customers with limited credit history
Marginal credit scores
High-risk industries
Large credit exposure relative to business size
Closely held companies

Guarantee Form:

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         PERSONAL GUARANTEE
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In consideration of [Your Company] extending credit to:

Company: _______________________

The undersigned personally, jointly and severally, guarantee
payment of all amounts owed by the above company to [Your Company],
including principal, interest, attorneys' fees and collection costs.

This is a continuing guarantee and shall remain in effect until
revoked in writing.

GUARANTOR(S):

Signature: _________________________  Date: __________________
Printed name: _______________________
Address: _____________________________________________________
SSN: _________________________

Signature: _________________________  Date: __________________
Printed name: _______________________
Address: _____________________________________________________
SSN: _________________________

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Credit Terms

Standard Terms:

Term	Description	Use When
Net 30	Due 30 days from invoice	Standard customers
Net 15	Due 15 days from invoice	Higher risk
2% 10 Net 30	2% discount if paid in 10 days	Encourage early pay
Progress billing	Bill at milestones	Larger projects
COD	Cash on delivery	Poor credit/new

Construction-Specific Terms:

Situation	Common Terms
Progress billing	Bill monthly, due Net 30
Retainage	5-10% held until completion
Pay-when-paid	Match owner's payment
Milestone	Payment at specific project points

Bad Debt Management

Collection Escalation:

Days Past Due	Action
1-15	Reminder notice
16-30	Phone call, account review
31-45	Demand letter, credit hold
46-60	Final notice, file lien if applicable
61-90	Collection agency or attorney
90+	Write-off consideration, legal action

Bad Debt Write-Off:

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         BAD DEBT WRITE-OFF REQUEST
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Customer: _______________________
Account #: _____________________
Amount: $_________________

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COLLECTION EFFORTS:

☐ All invoices sent
☐ Phone calls made (document): _____________________________
☐ Demand letters sent (dates): _____________________________
☐ Lien filed: ☐ N/A  ☐ Yes (date: ___________)
☐ Collection agency used: ☐ N/A  ☐ Yes (result: ___________)
☐ Attorney consulted: ☐ N/A  ☐ Yes (recommendation: ________)

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REASON FOR WRITE-OFF:

☐ Bankruptcy filed
☐ Business closed
☐ Cannot locate
☐ Cost of collection exceeds amount
☐ Statute of limitations
☐ Other: _______________________________

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APPROVAL:

Requested by: _______________________  Date: __________________
Approved by: _______________________  Date: __________________

Tax treatment: ☐ Bad debt deduction  ☐ Other

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Reporting

Credit Exposure Report:

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         CREDIT EXPOSURE SUMMARY
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As of: _______________

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| Customer | Limit | Balance | Available | Past Due | Status |
|----------|-------|---------|-----------|----------|--------|
|          |       |         |           |          |        |

TOTALS:    |       |         |           |          |

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CONCENTRATION RISK:

Top 5 customers by exposure:
1. _________________ $___________ (___% of total)
2. _________________ $___________ (___% of total)
3. _________________ $___________ (___% of total)
4. _________________ $___________ (___% of total)
5. _________________ $___________ (___% of total)

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AT-RISK ACCOUNTS:

| Customer | Balance | Days Past Due | Issue | Action |
|----------|---------|---------------|-------|--------|
|          |         |               |       |        |

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Accounts Receivable Procedures
Collections Procedures
Lien Rights
Go/No-Go Decision Process

Template provided by support.construction. The best time to worry about getting paid is before you start the work.

Purpose​

Why Credit Management Matters​

Construction Credit Reality:​

Benefits of Formal Credit Management:​

Credit Evaluation Process​

Step 1: Customer Credit Application​

Step 2: Credit Investigation​

Step 3: Credit Scoring​

Credit Limits​

Setting Limits:​

Credit Limit Matrix:​

Credit Monitoring​

Customer Credit Review:​

Review Frequency:​

Credit Holds​

Hold Triggers:​

Hold Process:​

Personal Guarantees​

When to Require:​

Guarantee Form:​

Credit Terms​

Standard Terms:​

Construction-Specific Terms:​

Bad Debt Management​

Collection Escalation:​

Bad Debt Write-Off:​

Reporting​

Credit Exposure Report:​

Related Documents​