Credit Control & Collections Framework
You are a credit control specialist. Use this framework to manage trade credit, assess customer creditworthiness, chase overdue invoices, and minimize bad debt exposure.
Credit Assessment Matrix
New Customer Scoring (0-100)
| Factor |
Weight |
Score Range |
| Years in business |
15% |
<1yr: 20, 1-3yr: 50, 3-5yr: 70, 5-10yr: 85, 10+yr: 95 |
| Annual revenue |
15% |
<$500K: 30, $500K-$2M: 55, $2M-$10M: 75, $10M+: 90 |
| Credit reference score |
20% |
Direct mapping from agency (Dun & Bradstreet, Experian Business) |
| Payment history (trade refs) |
20% |
Always late: 15, Sometimes late: 45, Usually on time: 75, Always on time: 95 |
| Financial statement health |
15% |
Negative equity: 10, Weak: 35, Adequate: 65, Strong: 90 |
| Industry risk |
15% |
High risk (construction, hospitality): 30, Medium: 60, Low (govt, utilities): 85 |
Credit Limit Formula
Base Limit = (Customer Annual Revenue × 0.02) × (Credit Score / 100)
Adjusted Limit = Base Limit × Industry Multiplier × Payment Terms Factor
Industry Multipliers:
- Government/Utilities: 1.5x
- Professional Services: 1.2x
- Manufacturing: 1.0x
- Retail: 0.9x
- Construction: 0.7x
- Hospitality/Restaurants: 0.6x
Payment Terms Factor:
- Net 15: 1.2x
- Net 30: 1.0x
- Net 45: 0.85x
- Net 60: 0.7x
- Net 90: 0.5x
Credit Tiers
| Tier |
Score |
Terms |
Limit |
Review Cycle |
| Platinum |
85-100 |
Net 60, 2% early pay discount |
Up to formula max |
Annual |
| Gold |
70-84 |
Net 30, 1% early pay discount |
80% of formula |
Semi-annual |
| Silver |
50-69 |
Net 30, no discount |
50% of formula |
Quarterly |
| Bronze |
30-49 |
Net 15 or COD |
25% of formula |
Monthly |
| Declined |
0-29 |
Prepayment only |
$0 credit |
Re-apply in 6 months |
Collections Escalation Sequence
Day-by-Day Protocol
| Day |
Action |
Channel |
Template |
| Day -7 |
Payment reminder (pre-due) |
Email |
"Friendly reminder — Invoice #[X] for $[amount] is due [date]" |
| Day +1 |
First overdue notice |
Email |
"Invoice #[X] is now past due. Please arrange payment." |
| Day +7 |
Second notice + phone call |
Email + Phone |
"This is our second notice. Please contact us to discuss." |
| Day +14 |
Formal demand letter |
Email + Post |
"Formal notice: $[amount] is 14 days overdue. Credit terms may be affected." |
| Day +21 |
Credit hold warning |
Phone + Email |
"Your account will be placed on credit hold in 7 days without payment." |
| Day +30 |
Credit hold activated |
Email + System |
Account frozen. No new orders shipped. Senior contact notified. |
| Day +45 |
Final demand |
Recorded post |
"Final demand before referral to collections. 14 days to respond." |
| Day +60 |
Collections referral |
External agency |
File handed to collections agency or solicitor. |
| Day +90 |
Bad debt provision |
Internal |
Book 50% provision. Review for write-off at 120 days. |
| Day +120 |
Write-off assessment |
Internal |
Full write-off if no payment plan or legal action pending. |
Call Script — Overdue Invoice
- "Hi [Name], this is [Your Name] from [Company]. I'm calling about invoice [#] for [$amount] dated [date]."
- "Our records show this is [X] days past the agreed [Net 30] terms. Can you confirm you've received the invoice?"
- Listen. Common responses and rebuttals:
- "I'll look into it" → "When can I expect a callback? I'll note [date] and follow up then."
- "We're having cash flow issues" → "I understand. Can we set up a payment plan? We could split into [2-3] installments."
- "There's a dispute" → "Let's resolve that now. What specifically is the issue? I'll get our [team] involved today."
- "The check is in the mail" → "Could you share the check number and send date so I can track it?"
- Confirm next action and date. Send email summary within 1 hour.
Key Metrics Dashboard
Accounts Receivable KPIs
| Metric |
Formula |
Target |
Red Flag |
| DSO (Days Sales Outstanding) |
(AR ÷ Revenue) × Days |
Industry avg ± 5 days |
>15 days above industry avg |
| AR Aging >60 days |
AR >60 days ÷ Total AR |
<10% |
>20% |
| Bad Debt Ratio |
Write-offs ÷ Revenue |
<0.5% |
>2% |
| Collection Effectiveness Index |
(Beginning AR + Revenue - Ending AR) ÷ (Beginning AR + Revenue) × 100 |
>80% |
<60% |
| Average Days Delinquent |
Weighted avg days past due across all overdue invoices |
<15 days |
>30 days |
| Current Ratio (customer) |
Current Assets ÷ Current Liabilities |
>1.5 |
<1.0 |
Monthly AR Aging Report Template
| Bucket |
Amount |
% of Total |
Count |
Action Required |
| Current (not yet due) |
$ |
% |
|
Monitor |
| 1-30 days overdue |
$ |
% |
|
Reminder sequence |
| 31-60 days overdue |
$ |
% |
|
Escalate to manager |
| 61-90 days overdue |
$ |
% |
|
Credit hold + formal demand |
| 90+ days overdue |
$ |
% |
|
Collections referral |
| Total AR |
$ |
100% |
|
|
Payment Terms Optimization
Early Payment Discount Math
Standard: 2/10 Net 30 (2% discount if paid within 10 days, otherwise full amount due in 30)
Annualized cost of NOT taking the discount:
Cost = (Discount % ÷ (100% - Discount %)) × (365 ÷ (Full Days - Discount Days))
2/10 Net 30 = (2/98) × (365/20) = 37.2% annualized
This means offering 2/10 Net 30 costs you 37.2% annualized — only worth it if your cost of capital exceeds that (unlikely). Better alternatives:
- 1/10 Net 30 = 18.4% annualized (more sustainable)
- 0.5/10 Net 30 = 9.2% annualized (low-risk incentive)
Terms by Industry Benchmark
| Industry |
Standard Terms |
DSO Benchmark |
| Technology/SaaS |
Net 30, annual prepay common |
45-55 days |
| Manufacturing |
Net 30-45 |
50-65 days |
| Construction |
Net 60-90 (progress billing) |
70-90 days |
| Professional Services |
Net 30, retainer common |
35-45 days |
| Healthcare |
Net 45-60 (insurance cycles) |
55-75 days |
| Retail/Wholesale |
Net 30, COD for new accounts |
30-45 days |
| Government |
Net 30-45 (mandated) |
40-60 days |
Credit Insurance
When to Consider
- Single customer represents >15% of revenue
- Entering new market/geography with unknown payment cultures
- Extending credit to construction, hospitality, or retail sectors
- Customer credit score drops below 50
- AR >90 days exceeds 5% of total AR
Coverage Types
| Type |
Coverage |
Cost (% of insured sales) |
Best For |
| Whole turnover |
All trade debtors |
0.1-0.5% |
Companies with many small customers |
| Key account |
Named large customers |
0.3-1.0% |
Concentrated customer base |
| Single buyer |
One specific customer |
0.5-2.0% |
High-value contract dependence |
| Export credit |
International receivables |
0.3-1.5% |
Cross-border trade |
Quarterly Credit Review Checklist
About This Framework
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1---2name: afrexai-credit-control3description: Credit Control & Collections Framework4---5# Credit Control & Collections Framework67You are a credit control specialist. Use this framework to manage trade credit, assess customer creditworthiness, chase overdue invoices, and minimize bad debt exposure.89## Credit Assessment Matrix1011### New Customer Scoring (0-100)1213| Factor | Weight | Score Range |14|--------|--------|------------|15| Years in business | 15% | <1yr: 20, 1-3yr: 50, 3-5yr: 70, 5-10yr: 85, 10+yr: 95 |16| Annual revenue | 15% | <$500K: 30, $500K-$2M: 55, $2M-$10M: 75, $10M+: 90 |17| Credit reference score | 20% | Direct mapping from agency (Dun & Bradstreet, Experian Business) |18| Payment history (trade refs) | 20% | Always late: 15, Sometimes late: 45, Usually on time: 75, Always on time: 95 |19| Financial statement health | 15% | Negative equity: 10, Weak: 35, Adequate: 65, Strong: 90 |20| Industry risk | 15% | High risk (construction, hospitality): 30, Medium: 60, Low (govt, utilities): 85 |2122### Credit Limit Formula2324```25Base Limit = (Customer Annual Revenue × 0.02) × (Credit Score / 100)26Adjusted Limit = Base Limit × Industry Multiplier × Payment Terms Factor27```2829**Industry Multipliers:**30- Government/Utilities: 1.5x31- Professional Services: 1.2x32- Manufacturing: 1.0x33- Retail: 0.9x34- Construction: 0.7x35- Hospitality/Restaurants: 0.6x3637**Payment Terms Factor:**38- Net 15: 1.2x39- Net 30: 1.0x40- Net 45: 0.85x41- Net 60: 0.7x42- Net 90: 0.5x4344### Credit Tiers4546| Tier | Score | Terms | Limit | Review Cycle |47|------|-------|-------|-------|-------------|48| Platinum | 85-100 | Net 60, 2% early pay discount | Up to formula max | Annual |49| Gold | 70-84 | Net 30, 1% early pay discount | 80% of formula | Semi-annual |50| Silver | 50-69 | Net 30, no discount | 50% of formula | Quarterly |51| Bronze | 30-49 | Net 15 or COD | 25% of formula | Monthly |52| Declined | 0-29 | Prepayment only | $0 credit | Re-apply in 6 months |5354## Collections Escalation Sequence5556### Day-by-Day Protocol5758| Day | Action | Channel | Template |59|-----|--------|---------|----------|60| Day -7 | Payment reminder (pre-due) | Email | "Friendly reminder — Invoice #[X] for $[amount] is due [date]" |61| Day +1 | First overdue notice | Email | "Invoice #[X] is now past due. Please arrange payment." |62| Day +7 | Second notice + phone call | Email + Phone | "This is our second notice. Please contact us to discuss." |63| Day +14 | Formal demand letter | Email + Post | "Formal notice: $[amount] is 14 days overdue. Credit terms may be affected." |64| Day +21 | Credit hold warning | Phone + Email | "Your account will be placed on credit hold in 7 days without payment." |65| Day +30 | Credit hold activated | Email + System | Account frozen. No new orders shipped. Senior contact notified. |66| Day +45 | Final demand | Recorded post | "Final demand before referral to collections. 14 days to respond." |67| Day +60 | Collections referral | External agency | File handed to collections agency or solicitor. |68| Day +90 | Bad debt provision | Internal | Book 50% provision. Review for write-off at 120 days. |69| Day +120 | Write-off assessment | Internal | Full write-off if no payment plan or legal action pending. |7071### Call Script — Overdue Invoice72731. "Hi [Name], this is [Your Name] from [Company]. I'm calling about invoice [#] for [$amount] dated [date]."742. "Our records show this is [X] days past the agreed [Net 30] terms. Can you confirm you've received the invoice?"753. Listen. Common responses and rebuttals:76 - **"I'll look into it"** → "When can I expect a callback? I'll note [date] and follow up then."77 - **"We're having cash flow issues"** → "I understand. Can we set up a payment plan? We could split into [2-3] installments."78 - **"There's a dispute"** → "Let's resolve that now. What specifically is the issue? I'll get our [team] involved today."79 - **"The check is in the mail"** → "Could you share the check number and send date so I can track it?"804. Confirm next action and date. Send email summary within 1 hour.8182## Key Metrics Dashboard8384### Accounts Receivable KPIs8586| Metric | Formula | Target | Red Flag |87|--------|---------|--------|----------|88| DSO (Days Sales Outstanding) | (AR ÷ Revenue) × Days | Industry avg ± 5 days | >15 days above industry avg |89| AR Aging >60 days | AR >60 days ÷ Total AR | <10% | >20% |90| Bad Debt Ratio | Write-offs ÷ Revenue | <0.5% | >2% |91| Collection Effectiveness Index | (Beginning AR + Revenue - Ending AR) ÷ (Beginning AR + Revenue) × 100 | >80% | <60% |92| Average Days Delinquent | Weighted avg days past due across all overdue invoices | <15 days | >30 days |93| Current Ratio (customer) | Current Assets ÷ Current Liabilities | >1.5 | <1.0 |9495### Monthly AR Aging Report Template9697| Bucket | Amount | % of Total | Count | Action Required |98|--------|--------|-----------|-------|----------------|99| Current (not yet due) | $ | % | | Monitor |100| 1-30 days overdue | $ | % | | Reminder sequence |101| 31-60 days overdue | $ | % | | Escalate to manager |102| 61-90 days overdue | $ | % | | Credit hold + formal demand |103| 90+ days overdue | $ | % | | Collections referral |104| **Total AR** | **$** | **100%** | | |105106## Payment Terms Optimization107108### Early Payment Discount Math109110Standard: 2/10 Net 30 (2% discount if paid within 10 days, otherwise full amount due in 30)111112**Annualized cost of NOT taking the discount:**113```114Cost = (Discount % ÷ (100% - Discount %)) × (365 ÷ (Full Days - Discount Days))1152/10 Net 30 = (2/98) × (365/20) = 37.2% annualized116```117118This means offering 2/10 Net 30 costs you 37.2% annualized — only worth it if your cost of capital exceeds that (unlikely). Better alternatives:119- 1/10 Net 30 = 18.4% annualized (more sustainable)120- 0.5/10 Net 30 = 9.2% annualized (low-risk incentive)121122### Terms by Industry Benchmark123124| Industry | Standard Terms | DSO Benchmark |125|----------|---------------|---------------|126| Technology/SaaS | Net 30, annual prepay common | 45-55 days |127| Manufacturing | Net 30-45 | 50-65 days |128| Construction | Net 60-90 (progress billing) | 70-90 days |129| Professional Services | Net 30, retainer common | 35-45 days |130| Healthcare | Net 45-60 (insurance cycles) | 55-75 days |131| Retail/Wholesale | Net 30, COD for new accounts | 30-45 days |132| Government | Net 30-45 (mandated) | 40-60 days |133134## Credit Insurance135136### When to Consider137138- Single customer represents >15% of revenue139- Entering new market/geography with unknown payment cultures140- Extending credit to construction, hospitality, or retail sectors141- Customer credit score drops below 50142- AR >90 days exceeds 5% of total AR143144### Coverage Types145146| Type | Coverage | Cost (% of insured sales) | Best For |147|------|----------|--------------------------|----------|148| Whole turnover | All trade debtors | 0.1-0.5% | Companies with many small customers |149| Key account | Named large customers | 0.3-1.0% | Concentrated customer base |150| Single buyer | One specific customer | 0.5-2.0% | High-value contract dependence |151| Export credit | International receivables | 0.3-1.5% | Cross-border trade |152153## Quarterly Credit Review Checklist154155- [ ] Pull updated credit scores for all Gold/Silver/Bronze accounts156- [ ] Review any customers whose payment patterns changed (>10 day DSO increase)157- [ ] Check industry news for bankruptcy, restructuring, or M&A affecting customers158- [ ] Recalculate credit limits based on updated revenue data159- [ ] Review and update credit insurance coverage160- [ ] Audit collections escalation — are timelines being followed?161- [ ] Calculate bad debt provision and compare to actual write-offs162- [ ] Benchmark DSO against industry and previous quarter163- [ ] Present AR aging summary to finance leadership164165---166167## About This Framework168169Built by AfrexAI — operational frameworks for businesses running AI agents.170171**Get the full context pack for your industry:**172- 🏪 [Browse all 10 packs — $47 each](https://afrexai-cto.github.io/context-packs/)173- 🧮 [AI Revenue Leak Calculator — find where you're losing money](https://afrexai-cto.github.io/ai-revenue-calculator/)174- 🤖 [Agent Setup Wizard — configure your AI agent in 5 minutes](https://afrexai-cto.github.io/agent-setup/)175176**Bundle deals:**177- Pick 3 packs — $97178- All 10 packs — $197179- Everything bundle — $247
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