Credit Policy Template for Canada

A Credit Policy guides how an organization evaluates and manages lending risks. It sets clear rules for who can receive credit, under what conditions, and how to handle payments and collections. For Canadian businesses, especially those regulated by OSFI, these policies help maintain strong risk management standards and comply with federal lending requirements.

The policy typically outlines credit limits, approval processes, interest rates, and default procedures. It protects both lenders and borrowers by creating consistent standards, helping staff make sound decisions, and ensuring fair treatment across all credit transactions. Regular reviews keep these policies current with market conditions and regulatory changes.

Your business needs a Credit Policy when starting to offer financing, loans, or payment terms to customers. This becomes especially crucial for Canadian financial institutions, retailers extending store credit, or B2B companies offering trade credit. The policy helps protect your organization from financial losses and ensures compliance with federal lending regulations.

Use it before approving any credit applications, during periodic reviews of existing credit relationships, and when training staff on credit decisions. Having this framework in place becomes vital as transaction volumes grow, when expanding into new markets, or if your default rates start rising. It's also essential when regulators or auditors examine your credit management practices.

• Credit Note Policy: Focuses specifically on managing refunds and adjustments to customer accounts. This specialized type of Credit Policy helps Canadian businesses maintain consistent handling of credit notes, returns, and billing corrections while ensuring compliance with tax regulations.
• Commercial Credit Policy: Used by B2B organizations to manage trade credit relationships with other businesses, including credit limits, payment terms, and security requirements.
• Consumer Credit Policy: Designed for retail and consumer lending, covering personal loans, store credit, and individual credit assessments with stricter consumer protection requirements.
• International Credit Policy: Addresses cross-border credit arrangements, incorporating additional risk factors and compliance needs for Canadian companies dealing with international customers.

• Financial Executives: CFOs and finance directors establish overall credit risk appetite and approve the final Credit Policy framework for their organizations.
• Credit Managers: Draft and implement Credit Policy details, oversee daily credit decisions, and ensure staff follow established guidelines.
• Sales Teams: Must understand and work within Credit Policy limits when negotiating payment terms with customers.
• Risk Officers: Review and update policies to maintain compliance with OSFI guidelines and other Canadian regulations.
• External Auditors: Evaluate Credit Policy effectiveness and compliance during regular financial audits.
• Customers: Must meet policy requirements to obtain credit and comply with established payment terms.

• Business Assessment: Review your organization's credit needs, risk tolerance, and current customer payment patterns.
• Regulatory Research: Gather relevant OSFI guidelines and Canadian lending regulations that apply to your industry.
• Internal Input: Collect feedback from finance, sales, and legal teams about credit approval workflows and risk controls.
• Template Selection: Use our platform to generate a legally-sound Credit Policy template tailored to your needs.
• Key Components: Include credit limits, approval processes, payment terms, collection procedures, and default protocols.
• Review Process: Define how often the policy will be reviewed and who has authority to approve changes.

• Purpose Statement: Clear outline of policy objectives and scope of credit operations.
• Credit Assessment Criteria: Specific metrics and requirements for evaluating creditworthiness.
• Authorization Levels: Defined approval limits and decision-making hierarchy.
• Payment Terms: Detailed conditions including interest rates, late fees, and collection procedures.
• Privacy Compliance: PIPEDA-compliant procedures for handling customer financial data.
• Default Procedures: Steps for managing delinquent accounts and enforcement measures.
• Review Schedule: Timeframes for policy updates and compliance assessments.
• Governing Law: Statement confirming application of Canadian federal and provincial regulations.

A Credit Policy often gets confused with a Credit Agreement, but they serve distinct purposes in Canadian business operations. While both deal with credit relationships, their scope and application differ significantly.

• Purpose and Nature: A Credit Policy is an internal document that guides an organization's overall credit decisions and risk management. A Credit Agreement is a binding contract between lender and borrower for a specific transaction.
• Scope of Application: Credit Policies cover all credit-related activities across the organization, while Credit Agreements apply to individual lending relationships.
• Legal Enforceability: Credit Policies serve as operational guidelines but aren't directly enforceable against customers. Credit Agreements are legally binding contracts that can be enforced in court.
• Content Focus: Credit Policies outline approval processes and risk parameters, while Credit Agreements specify exact terms, interest rates, and repayment schedules for specific loans.