The Credit Management Process: The Key to Achieving Financial Stability

What is the Credit Management Process?

Credit management is the process of deciding which customers to offer credit to, setting clear payment terms, and ensuring that invoices are paid on time. It plays a crucial role in maintaining healthy cash flow and reducing the risk of bad debts, especially for UK businesses that rely heavily on trade credit in B2B transactions.

At its core, credit management is about striking the right balance between growing sales and managing financial risk. Offering credit can attract more customers and increase sales volume, but without a proper system in place, it can lead to delayed payments, strained supplier obligations, and even write-offs.

The credit management process typically includes assessing the creditworthiness of customers, establishing credit limits, issuing invoices, monitoring payments, and following up on overdue accounts. Businesses that actively manage their credit policies are better equipped to make informed decisions, protect revenue, and plan with confidence.

Manual credit control methods are becoming outdated. More businesses are now turning to automated credit management solutions that bring consistency, visibility, and speed to every step of the process, from customer onboarding to final payment collection.

The following are some of the key questions that you need to ask when assessing a borrower’s credit:

1. How is the client’s creditworthiness evaluated?
2. What does the firm’s invoice management process look like?
3. What are the terms and conditions imposed on the clients?
4. How is the credit management team performing?
5. Who is in charge of overseeing the credit management process?

While often used interchangeably, credit management and credit control serve different functions within a business’s financial operations.

Credit management is the strategic process of setting credit policies, assessing customer risk, defining payment terms, and monitoring overall credit exposure. It takes a broader, proactive view — aiming to minimise risk before it occurs and support long-term financial health.

In contrast, credit control is the tactical side — it involves the day-to-day operations of collecting payments, sending reminders, managing overdue accounts, and enforcing credit terms. It kicks in after a sale has been made on credit.

Here’s a simple comparison:

Both are essential. Credit management sets the framework, while credit control ensures it’s followed effectively, and automation can help streamline both.

The 7 Key Steps in the Credit Management Process

A structured credit management process helps businesses protect revenue, reduce bad debts, and maintain healthy cash flow. Here are the seven essential steps involved:

1. Customer Credit Assessment

Before extending credit, evaluate the customer’s financial stability, credit history, and risk profile. Use credit reports from UK agencies like Experian, Equifax, or Creditsafe. This step ensures you’re making informed decisions from the start.

2. Setting Credit Terms & Limits

Define payment terms (e.g. 30 or 60 days), interest for late payments, and the maximum credit limit based on the customer’s risk level. These terms must be communicated clearly in contracts or invoices to avoid disputes later.

3. Invoicing & Documentation

Send accurate, timely invoices with clear due dates, reference numbers, and itemised charges. Documentation should comply with HMRC guidelines and align with your internal accounting systems.

4. Payment Monitoring

Track outstanding invoices and payment behaviour. Use accounting software or workflow automation tools to flag upcoming due dates and detect early signs of payment delays.

5. Follow-ups & Reminders

Send automated reminders before and after due dates. Begin with polite nudges and escalate communication if payments remain overdue. Consistency here significantly improves on-time collections.

6. Debt Collection Procedures

If payments are still unpaid, follow your internal escalation path, which could include involving debt collection agencies or legal proceedings. Ensure these actions are compliant with UK commercial debt laws.

7. Review & Reporting

Regularly review credit performance metrics like Days Sales Outstanding (DSO), overdue accounts, and write-offs. Reporting helps refine credit policies, adjust limits, and improve forecasting accuracy.

Tip: Consider creating a flowchart to visualise this process — from credit checks to payment collection — and how each step feeds into the next.

By following this structured approach, businesses can make credit a strategic advantage instead of a liability. Better yet, automating these steps through tools like Cflow can significantly cut down time, errors, and manual effort.

Need for Credit Management Process

A good credit management process is significant for a business as it helps maintain financial stability and profitability. When done properly, businesses can mitigate risks and increase growth opportunities. 

Good credit management keeps businesses proactive and formulates strategies for identifying risks by evaluating possible losses and deliberately safeguarding against the risk of extending credit.

In addition, credit management plans protect a business’s cash flow by optimising the performance, as more than half of bankruptcies happen due to poor credit management. 

However profitable a business may be it can soon turn into losses if its receivables are not managed properly. Businesses spiral into debt when their working capital is less than required to settle the creditors and meet other expenses. 

Therefore, an effective credit management process is crucial for business growth.

The Credit Analysis Process

The 5Cs of credit analysis include character, capacity, capital, collateral, and conditions. 

• Character helps understand the borrower’s creditworthiness and how they will make repayments.
• Capacity defines how the borrower makes payments with their internally generated cash flow.
• Capital represents the borrower’s financial health and assesses alternative liquidity sources.  
• Collateral defines the physical assets of a borrower for security purposes. 
• Conditions define the loan’s purpose based on the external environment. 

Credit analysis is an integral part of the credit management process, which is done by professionals to analyse a prospective borrower using different qualitative and quantitative techniques. The above factors are crucial for making a successful credit analysis. 

The qualitative credit analysis employs frameworks like PESTEL to understand risks associated with external environmental factors. These include interest rate fluctuations and the state of the border economy etc. For commercial lenders, it is best to use SWOT and Porter’s 5 Forces framework to analyse their competitive advantage and industry trends. 

Quantitative credit analysis uses factors such as employing risk models to assess financial ratios, sensitivity analysis, understanding financial projections, and evaluating the physical collateral’s strength and quality for security against credit exposure. 

In addition, commercial credit analysis is done for borrowers seeking business loans, where lenders need to define their business entity. The underwriter collects large numbers of qualitative and quantitative data points to analyse risk models and gives a corporate credit rating based on which the loan structure is formulated. 

KPIs and Metrics to Track Credit Management

Tracking the right Key Performance Indicators (KPIs) is essential for understanding how well your credit management process is working. These metrics help you spot risks early, optimise collections, and improve cash flow forecasting.

Here are the most important KPIs every finance team should monitor:

• Days Sales Outstanding (DSO): Measures the average number of days it takes to collect payment after a sale. A high DSO means delayed payments and tighter cash flow.

• Bad Debt Ratio: The percentage of receivables written off as uncollectible. A lower ratio indicates healthier credit policies.

• Collection Effectiveness Index (CEI): Evaluates how efficiently your team collects receivables within a given period. It factors in beginning receivables, credit sales, and ending receivables.

• Average Payment Delay: Shows how many days, on average, customers are paying late beyond agreed terms.

Tracking these metrics regularly enables smarter decisions and continuous improvement in your credit strategy.

Credit Management Strategy

Having solid credit management strategies can help establish control. However, there are certain steps in creating the strategy.

Define your objectives

First, you need to define your credit management process and the existing practices in your company. You need to ask these questions:

1. Who is responsible for managing credit? Is it managed by a team an individual or other stakeholders? 
2. Is the decision being made sound after analysing the credit history of prospective customers?
3. What are the rules that customers need to follow in case of late payments? Are they aware of it?

Establish a credit and debit management process.

In case your company doesn’t have a standard credit and debt management process, you can establish one using these steps:

• Calculate DSO. Your average daily sales outstanding is the average number of days for your business to collect payment from customers, and compare it with industry averages. 
• Reform your billing cycle and payment terms with suppliers.
• Have a healthy, diverse customer base so that you are not relying on one big customer.

Formulate a risk management plan.

Ensure that all your employees are familiar with credit risk management practices. It includes contract management optimisation, AR collections, identification and analysis of the risk of new prospects and their patterns of defaulting payments, and creating a solid credit risk mitigation plan. 

Every department should be made aware of the mitigation plan and ensure that there is a healthy balance between avoiding risks and seizing opportunities. On the other hand, when you are too cautious, you may miss out on some potential sales opportunities. But being too lax can mean you miss noticing signs of risky customers. Therefore, balance is the key to credit risk management. 

Certify prospects

Establishing credit creditworthiness of your potential customers is of the utmost importance. Your business needs to be proactive in managing credit, especially in understanding the customer’s financial picture. 

Attracting new customers is important for your business, but ensure they don’t become a liability. As said earlier, identify their defaulting payment patterns, analyse the risks, and be ready with your credit risk mitigation plan.

Your existing customers should be reviewed periodically to ensure that they don’t default on payments and to maintain a good, long-lasting relationship. Regularly monitor their cash flow status using information from credit bureaus, banks, and trade references. These can reveal their up-to-date financial activities. 

If there are foreign customers, managing credit can be a bit complex, as the credit information might be different, and you need to understand their ways to interpret and measure their creditworthiness. Therefore, mention country-specific credit risks while evaluating international clients – exchange rate fluctuations, economic and political instability, trade sanctions, etc. 

Documentation

Establishing contracts with customers is another crucial process for credit management and 

• You need to ensure that it includes all the payment terms and conditions, contract agreements, and other relevant conditions.
• Review with a lawyer before entering the contract.
• Clarify any idiosyncratic policies and payment procedures and be clear on who is handling invoices and who is to be acknowledged with the receipt.
• Ensure that invoices are made early and on time and addressed to the right person, and always ask for an acknowledgement receipt for your invoice.
• Document every transaction and every financial discussion with your customers to ensure credibility, and it helps reduce the probability of customers defaulting on payments. 

Observe your customer’s payment progress.

There is no guarantee that all your customers will make payments on time. However, having a credit management strategy will be beneficial. Continuously monitor your customers’ payment progress and ensure that they comply with the contractual terms. Review each customer’s payment history, match their frequency, align the perceived risks, address them, and mitigate them in advance. 

In the event of delayed payments, don’t immediately seek a lawyer, as it is important to maintain good relationships with your customers. Call and give polite reminders, but with a firm written reminder that their payment is expected in a reasonable time. If the invoice remains unpaid for several months after consecutive reminders, then turn to professional support. 

Common Challenges in Credit Management

Even with a well-structured process, businesses often face recurring challenges in credit management, especially when relying on manual systems or inconsistent policies.

1. Late Payments

One of the most common issues for UK businesses is late customer payments. This not only disrupts cash flow but also affects supplier relationships and day-to-day operations.

2. Inadequate Credit Risk Assessment

Skipping thorough credit checks or relying on outdated data can lead to extending credit to high-risk clients, resulting in defaults or write-offs.

3. Lack of Standardised Processes

Without a consistent credit policy, different teams may follow their own rules. This leads to delays, miscommunication, and inefficiencies.

4. Poor Documentation

Missing or unclear invoice terms, incorrect billing details, or weak recordkeeping can slow down collections and lead to disputes.

5. Manual Follow-Ups

Chasing payments manually is time-consuming and prone to delays. Many businesses fail to follow up on time, resulting in further payment lags.

6. Regulatory Non-Compliance

In the UK, not complying with commercial debt recovery laws or GDPR regulations when handling customer data can result in legal complications.

Addressing these challenges with automation and clearer policies can significantly improve credit management outcomes.

Best Practices for Efficient Credit Management

Implementing effective credit management isn’t just about preventing losses — it’s about building a process that supports growth while maintaining financial control. Here are some best practices to help UK businesses stay ahead:

1. Establish a Clear Credit Policy

Define who qualifies for credit, how much credit to extend, and under what terms. Make sure these policies are documented and easily accessible to all relevant teams.

2. Perform Regular Credit Checks

Use UK-based credit bureaus like Experian or Creditsafe to assess a customer’s creditworthiness before extending credit, and continue to monitor high-risk accounts periodically.

3. Automate Invoicing and Reminders

Use workflow automation tools to send accurate invoices, track due dates, and trigger reminder emails automatically. This reduces human error and speeds up the collection process.

4. Train Finance and Sales Teams

Ensure everyone understands the credit policy and the importance of enforcing it consistently. Aligning sales and finance can prevent risky decisions.

5. Review Metrics Monthly

Track KPIs like DSO, overdue accounts, and collection effectiveness regularly. Use this data to adjust limits, update policies, or flag risky trends early.

Consistency, visibility, and automation are key to building a reliable credit management process.

Credit Management for Different Industries

Credit management isn’t a one-size-fits-all process — it varies widely across industries, based on transaction volumes, risk levels, and payment behaviours.

Retail & E-commerce

Typically deal with high transaction volumes and short payment cycles. Credit management here focuses on real-time checks, fraud prevention, and fast collections.

B2B & Manufacturing

Often provide trade credit with longer payment terms (30–90 days). The emphasis is on thorough credit checks, formal agreements, and clear escalation processes for overdue accounts.

Service Providers & Agencies

These businesses usually invoice after service delivery, so credit risk increases. Strong contract terms, milestone-based billing, and automated reminders are essential.

Here’s a quick comparison:

Tailoring your credit process to your industry helps improve compliance, reduce disputes, and optimise working capital.

How Automation Transforms the Credit Management Process

The challenges of the manual credit management process can be easily overcome using automation. You can accelerate the process using automated technology by automating accounts receivable and collections management. 

Automation improves credit management in terms of:

Precision

A prospect’s creditworthiness needs to be evaluated thoroughly to safeguard from financial risks. The credit analysis process involves analysing financial information, payment patterns, credit history, and other industry standards. Credits can be offered to customers only if they meet all the eligible criteria and can afford the credit payment in case their business fails. Automation improves attention to detail in the credit analysis process. 

Formulating a clear credit policy

Having an effective credit policy is of significant importance for any business as it clearly defines the terms and outlines any circumstances that need to be considered. A solid credit management policy can keep prospects and employees together, clearly communicate credit limits, improve customer experience, and define payment terms, interest rates, and penalties for missed or late payments. 

Solid terms and conditions

A robust set of terms and conditions is crucial for protecting both your business and your customers, and also supporting the sales contract. The terms and conditions should tell customers about the payment terms and payment streams available to them. It should also outline any contractual protections or rewards – the right to charge late payment interest, discounts on foreclosing or keeping the title to some goods sold on credit, and much more. If this is done well, your customers can clearly understand what is expected of them. 

Regular customer monitoring

Regularly monitoring your customers is essential to identify early signs of inefficiency in paying. Monitoring these specific customers can be done by trend analysis of their payment terms and identifying any changes in their financial circumstances. AI-powered automated tools help with trend analysis and forecast scenarios to get you ready to face any unexpected issues. 

Proactive collection strategies

Implementing collection strategies makes you proactive in facing any potential payment problems. These strategies will help you address the issues well before the due date for payment. Clear collection pathways should be established if payments are not made on time. These can be physical reminders, collection calls, and escalation processes. You need to be certain and clearly communicate to the customer regarding what will happen if they do not comply with the terms and conditions.  

Onboarding 

With automation, you can automate the entire onboarding journey. Collecting the credit information of prospective customers is a tedious process, especially when done manually. The process involves gathering bank reference documents, credit bureau reports, and trade references. In addition, credit managers have to simultaneously manage and coordinate the work of different stakeholders. 

When you use an automation system like Cflow, it drastically reduces the onboarding time and simplifies the document collection process. With Cflow, you can customise workflows, equip them with collections solutions, and automate accounts receivable to establish control over credit information and optimise the processes. 

AI-powered credit management

AI-powered automated tools help in improving the credit management process by automating invoice tracking, payment reminders, and collection workflows. 

With AI increasingly becoming the hot topic of debate, its application has taken many forms, from producing business viability scores to predicting a client’s chances of defaulting on their payments. 

AI tools and other innovative digital tools can predict a customer’s creditworthiness much faster than human credit managers and much more accurately.

Top 9 Credit Management Tools

1. Cflow

Cflow is an AI-powered workflow automation platform that specifically offers automated workflows for credit approvals.

Cflow’s key features for credit management include:

• Automating tasks such as invoice processing and triggering payment reminders.
• Streamline credit approval workflows.
• Monitor risk related to credit based on the transaction history in real-time.
• Improved financial efficiency and reduced manual effort.

2. HighRadius

HighRadius is an AI-powered, comprehensive credit management solution with key features such as:

• Online credit application management.
• Automated credit review and informed decision-making based on financial data analysis.
• Integration with the credit bureau for risk assessment.
• Easy handling of customer disputes with its deductions management functionality.

3. Tesorio

Tesorio specialises in automated accounts receivable (AR) management and offers the following key features for credit management:

• Easy identification of at-risk payments.
• Automated collection emails and workflows
• Real-time case flow visibility with optimised credit terms.
• Integration with existing accounting systems in businesses for seamless data flow. 

4. Upflow

Upflow is another AR management solution with impressive credit management features, focusing on improving customer experience. Its key features include:

• Self-service customer portal simplifies online payments and invoices.
• Automated payment reminders and follow-ups.
• Easy online payment options enable finance professionals to work faster.
• Offering data-driven insights for improving credit risk assessment.

5. TEZ ERP

TEZ ERP is an enterprise resource planning system integrated with credit management functionalities. It offers some valuable features such as:

• Customer credit limit management
• Credit risk analysis based on collected customer information
• Automated invoice generation and collection process
• Easy integration with third-party business applications for holistic credit management

5. Kolleno

Kolleno offers  cloud-based AR automation solutions with solid credit management functions such as:

• Customizable workflows enabling an automated credit control process
• Integration with existing accounting software for centralised data management
• Real-time reporting and dashboards for real-time risk analysis
• Faster resolution of customer inquiries with dispute management tools.

6. Serrala

Serrala specialises in offering cloud-based B2B credit management solutions and collections management with key features such as:

• Optimised credit application process
• Automated credit scoring and approval workflows
• Risk assessment and monitoring of customer creditworthiness
• A wide range of collaboration features for efficient communication with customers

7. Versapay

Versapay offers its users integrated payment solutions and unique credit management functionalities such as:

• Secured online payment portal
• Automated payment processing and reconciliation
• Easy integration with accounting systems for centralised data management and streamlined AR processes
• Customizable payment options for improved customer convenience.

8. Cogent

Cogent offers businesses a cloud-based platform for credit risk analysis and collections management with some key features such as:

• Integration with the credit bureau for in-depth customer credit analysis
• Customizable workflows enabling automated credit strategies
• Informed data-driven decision-making helps in identifying and mitigating credit risks.
• Risk scoring and segmentation features for targeted credit management

9. Esker

Esker provides a cloud-based AR automation platform with integrated credit management features such as:

• Automated invoice processing and approval workflows
• An online customer self-service portal for managing invoices and payments.
• Credit risk assessment is done using real-time data analytics
• Seamless integration with existing accounting systems for improved efficiency.

Managing Credit with Cflow

Manual credit management can slow down your finance team and expose your business to risks, from delayed payments to poor compliance. Cflow helps streamline the entire credit management process with no-code automation, giving you full control from credit approval to collections.

Step-by-Step Credit Workflow Automation

With Cflow, you can create a custom credit approval workflow that mirrors your internal policy. For example, when a sales team submits a new customer request, Cflow automatically triggers a credit check, routes it to the finance team for review, and assigns approval levels based on customer type or credit limit. Every step is recorded and visible in real time, eliminating bottlenecks.

Key Features that Support Credit Management

Cflow offers a Visual Workflow Builder to design and manage processes without any coding. Its Drag-and-Drop Form Designer lets you capture essential credit data like financials, references, and terms. You can set up multi-level approvals, conditional routing, and auto-reminders for follow-ups, all from a single platform.

Transparency, Compliance, and Mobility

Cflow maintains a complete audit trail, helping you stay compliant with UK financial regulations. With real-time dashboards, you can track outstanding credits, DSO trends, and overdue actions. Cflow also works on mobile, making it easy for managers to review and approve credit requests on the go, ensuring no delays in decision-making.

By automating credit workflows with Cflow, you reduce manual effort, improve accuracy, and protect your business from unnecessary credit risk.

Conclusion

Effective credit management is vital for businesses aiming to protect cash flow and reduce risk. With a clear and consistent credit management process, UK organisations can improve payment timelines, boost financial transparency, and minimise write-offs. But to achieve this at scale, automation is essential.

Cflow enables finance teams to streamline every step of the credit process with ease — no coding required. From onboarding customers to setting limits and chasing overdue invoices, Cflow ensures everything runs like clockwork.

Looking for effective ways to optimise your credit management with automation? Try Cflow. Sign up for a free trial and talk to our experts today!

Frequently Asked Questions

1. What is the difference between credit control and credit management?

Credit management is the strategic process of assessing customer risk, setting credit terms, and managing credit policies. Credit control focuses on day-to-day operations like issuing invoices, following up on payments, and collecting overdue amounts.

2. Can the credit management process be fully automated?

Yes, many parts of the credit management process can be automated — including credit checks, approval workflows, invoicing, reminders, and escalations. Automation tools like Cflow reduce manual tasks, ensure compliance, and speed up collections.

3. What are the legal risks of poor credit management in the UK?

Failing to manage credit properly can lead to cash flow issues, missed regulatory obligations (like GDPR or FCA rules), and damaged relationships with suppliers and customers. Consistent processes and documentation are key to avoiding these risks.

Related Articles:

• 5 Essential Credit Management Approval Workflows to Automate
• Accounts Receivable Process: An Overview
• Streamlining the Order to Cash Process through Workflow Automation
• Understanding Accounts Payable – Definition & Process
• How to Improve Finance Process in Your Business?

What should you do next?

Thanks for reading till the end. Here are 3 ways we can help you automate your business:

Do better workflow automation with Cflow

Create workflows with multiple steps, parallel reviewals. auto approvals, public forms, etc. to save time and cost.

Try Cflow for free

Talk to a workflow expert

Get a 30-min. free consultation with our Workflow expert to optimize your daily tasks.

Book a demo

Get smarter with our workflow resources

Explore our workflow automation blogs, ebooks, and other resources to master workflow automation.

Check out our blogs

Get Your Workflows Automated for Free!

Business Name

Business Email

Phone

Draw your workflow. Take a snap and upload it here

Good time to call

Your timezone

Describe your requirements (If any)

By submitting this form, you agree to our terms of service and privacy policy.