Credit Application and Check Procedure
Standardized corporate procedure to evaluate, approve, and monitor vendor credit applications, including financial background checks, credit limit determination, and ongoing review cycles.
The Credit Application and Check Procedure defines the mandatory steps for evaluating and extending trade credit to new and existing vendors. This policy ensures that all credit decisions are based on objective financial data, verifiable references, and standardized risk scoring. The procedure applies to all departments initiating credit requests and covers initial applications, periodic reviews, and escalation of high-risk accounts.
By implementing this procedure, the organization reduces exposure to bad debt, maintains consistent payment terms across the supply base, and aligns with internal financial control standards (IFCS) and audit requirements.
This procedure applies to all new vendor credit applications and to annual reviews of existing vendors with active credit terms. It covers all procurement categories exceeding $10,000 CAD in annual spend or any vendor requesting net-30 or greater payment terms. Exceptions require written approval from the Director of Procurement or CFO.
Credit checks must be performed on all vendors before issuing the first purchase order involving deferred payment. The policy also applies to subcontractors and service providers that invoice on net terms.
- Mandatory Financial Verification: Every credit application must include a recent credit bureau report (e.g., Dun & Bradstreet, Equifax Business) or equivalent financial statements (last two fiscal years). Incomplete applications are returned within 5 business days.
- Credit Limit Formula: Initial credit limit shall not exceed 10% of the vendor's reported net worth or $50,000, whichever is lower. Exceptions require CFO approval with documented risk mitigation.
- Reference Checks: At least three trade references must be contacted and verified. References from companies with a known relationship to the applicant (same ownership or director) are not accepted.
- Annual Review & Monitoring: All active credit accounts are reassessed every 12 months. Accounts with payment delinquency >60 days past due are immediately suspended pending review.
- Document Retention: All credit application materials (reports, references, approvals) must be retained for the duration of the business relationship plus seven years, in compliance with corporate recordkeeping standards.
- Procurement Officer: Collects and submits the completed credit application package; verifies trade references; enters vendor data into the ERP system with assigned credit limit.
- Finance Analyst: Obtains and evaluates credit bureau reports, calculates initial credit limits, and flags any negative findings for escalation.
- Procurement Manager: Reviews and approves credit applications up to $50,000; escalates higher limits to CFO.
- CFO / Director of Finance: Approves or rejects credit applications exceeding $50,000 or those with high-risk indicators; authorizes exceptions to policy.
- Accounts Payable: Monitors payment behavior against established terms and reports any accounts exceeding 30 days past due to the Procurement Manager.