What is a Credit Policy and how does it work?

Within the credit policy, a series of data must appear that guarantee its legality and specify the different conditions it includes. All the data of the financial institution granting it are reflected, as well as those of the company or self-employed person to whom it has been granted. In addition, the following elements must be included:

• Amount: this is the maximum amount the company can use to remedy a financial situation. The company freely decides whether to use all, part, or none of the amount granted in credit.
• Term: specifies the time during which the credit policy will be valid and the conditions for its renewal. Sometimes an automatic extension of a policy is established.
• Costs: focuses on the different commissions and interests applied in the policy.

You must sign this document at a notary for it to be valid. We ensure that all parties understand the obligations and rights they acquire in this contract.

The commissions applied to a credit policy are the expenses borne by the contracting company. These are a series of economic amounts specified prior to the acquisition and use of the policy. Generally, the following are included:

• Opening commission: This is an expense arising from the granting and acquisition of the policy at the initial moment, paid only once.
• Commission on drawn balance: Each time the company uses the money from the policy, a commission is applied on the utilised part while it has not been repaid.
• Availability commission: this is the commission charged for having an amount available on credit and is charged on the total amount of credit that is not being used. It is a commission for having the possibility to use an amount available. Usually, it is a commission lower than the commission charged on the funds actually used.
• Interest for exceeding and commission for exceeding: In some situations, the contracting party may exceed the total credit granted. This extra is subject to a different and higher commission than the commission on the drawn balance. It is usually a very high commission, so before exceeding the available credit amount, it is advisable to increase the policy.

Along with these commissions, others may appear arising from guarantees, renewals or for early closure of the policy. Having this type of balance can become very costly, but sometimes it is a financial cushion in an unforeseen situation.

A policy of this type is usually taken out by companies that operate in markets where payments are made over long periods or may be delayed. As a general rule, they are used to increase cash flow at a given time in anticipation of a future collection. They are very common in industry and agriculture.