Learning Outcomes
After reading this article, you will be able to identify legal and ethical issues arising in credit control activities. You will recognise how key laws apply to credit collection, explain professional guidelines shaping ethical behaviour, and apply best practice when managing overdue accounts. You will also understand the risks of unethical or unlawful credit actions, including consequences for individuals and organisations.
ACCA Foundations in Financial Management (FFM) Syllabus
For ACCA Foundations in Financial Management (FFM), you are required to understand legal and ethical responsibilities when controlling credit. This includes:
- The main legal obligations and restrictions on debt collection practices
- Ethical expectations in contact with customers and handling sensitive data
- The importance of integrity and fairness when recovering debts
- Professional conduct in negotiating payment arrangements
- The consequences of unethical or unlawful actions in credit control
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- Which law generally prohibits a credit controller from disclosing a customer’s debt to a third party without consent?
- If a credit controller uses aggressive language to threaten a debtor, which type of issue arises?
a) Legal only
b) Ethical only
c) Both legal and ethical
d) Neither legal nor ethical - Name two possible consequences for a business that repeatedly engages in unlawful credit control practices.
- Why is it unacceptable for a credit controller to misrepresent the amount owed by a customer?
- What principle requires a credit controller to ensure personal opinions do not influence credit decisions?
Introduction
Credit control involves managing overdue debts and customer payments. While collection is necessary for business survival, credit control staff must always work within legal boundaries and uphold high ethical standards. Legal breaches or unethical actions can damage reputations, incur penalties, and undermine public trust.
This article explains key legal requirements and outlines the professional expectations for ethical behaviour in credit management. It also provides guidance on how to avoid common pitfalls and apply best practices when working with customers experiencing payment difficulties.
Key Term: credit control
The function within an organisation responsible for granting credit, monitoring customer accounts, and taking steps to recover overdue amounts.
LEGAL CONSIDERATIONS IN CREDIT CONTROL
Credit controllers must conduct all activities in line with laws that regulate debt collection and safeguard individuals.
Statutory Restrictions
Legal restrictions exist to protect debtors from unfair or unlawful treatment. Typical areas governed by law include:
- Prohibition of harassment, threats, or coercion
- Requirements for the accurate calculation and disclosure of debts
- Rules about sharing or publicising debt information (confidentiality)
- Limits on the timing and manner of contact with debtors
- Data protection laws covering collection, storage, and sharing of personal customer information
Violations can lead to regulatory fines, legal actions against the business, or criminal liability. Ignorance of the law is not accepted as an excuse.
Key Term: confidentiality
The principle and legal requirement to keep customer information, including details of debts, private and secure unless disclosure is required by law or authorised by the customer.Key Term: harassment
Persistent, unwanted, or aggressive actions taken to pressure a debtor, including inappropriate contact, which contravenes legal regulations in credit collection.
Lawful Debt Recovery Steps
Credit control must use lawful means only. Accepted steps typically include:
- Sending reminders, statements, or formal demand letters
- Offering repayment plans in writing
- Initiating legal proceedings if agreement cannot be reached
Unlawful actions include:
- Physical intimidation or verbal abuse
- Falsely claiming legal powers that do not exist
- Disclosing debts to colleagues, employers, or social contacts
Unlawful pressure or misleading statements are prohibited.
ETHICAL CONDUCT IN CREDIT CONTROL
Ethical standards go beyond the minimum required by law. Professional codes, such as those issued by ACCA, require all staff to act with honesty, fairness, and responsibility at all times.
Key Ethical Principles
- Integrity: Always give truthful, accurate information to customers. Never conceal material facts, inflate debts, or mislead a debtor about consequences.
- Objectivity: Avoid bias in applying policies—do not let personal feelings about a customer influence your actions.
- Confidentiality: Never share information about a customer’s debt status with unrelated parties.
- Professional behaviour: Treat all customers respectfully, regardless of their payment status. Do not use language or tactics designed to cause distress.
- Fairness: Offer reasonable options for repayment if possible, taking into account a customer’s circumstances.
Key Term: integrity
Acting consistently with honesty, transparency, and trustworthiness, even when under pressure to meet collection targets.Key Term: objectivity
Making decisions about credit management based on facts and established policies, free from personal motives or undue influence.
Dealing with Vulnerable Customers
Ethical conduct requires sensitivity when customers are experiencing hardship. Where evidence exists of illness, unemployment, or other difficulties, credit staff should:
- Signpost to independent advice if appropriate
- Consider reasonable adjustments to repayment expectations
- Avoid unnecessary escalation where a customer is cooperating
Unfair treatment of vulnerable individuals may breach both legal and ethical obligations.
BEST PRACTICE: PROFESSIONAL BEHAVIOUR AND RISK MANAGEMENT
To protect both the business and the reputation of the finance function, credit control teams should:
- Have clear written policies setting out legal and ethical standards
- Ensure staff are trained regularly on expected conduct
- Record all communications with debtors accurately
- Escalate complex or sensitive cases for managerial review
Unethical or unlawful practices are likely to be detected and punished, with severe commercial consequences.
Worked Example 1.1
A credit controller receives a request from a colleague in another department asking for details about an employee’s overdue account. What should the credit controller do?
Answer:
The credit controller must refuse the request unless there is a legitimate business need and sharing information complies with data protection laws and confidentiality rules. Disclosing debt details to unrelated colleagues would be both unethical and potentially unlawful.
Worked Example 1.2
A debt collector threatens to call at a debtor’s home outside permitted hours and tells the debtor they will lose their job if the debt is not paid immediately. What issues arise?
Answer:
This conduct likely breaches both legal prohibitions against harassment and professional ethical standards (lack of integrity and fairness). The actions may expose the business and individual to legal sanctions and disciplinary action.
Exam Warning
Exaggerating legal consequences or misrepresenting your authority to a debtor is both unlawful and unethical. Do not threaten legal action unless authorised, and ensure all communications reflect the business’s true position.
Revision Tip
Review your organisation’s code of conduct and ensure you can explain how it applies in day-to-day credit management situations for the exam.
Summary
Ethical and legal standards in credit control are not optional extras. Following the law and professional conduct codes is essential for protecting the business and its customers. Failure to uphold these standards can result in penalties, court action, and reputational damage.
Key Point Checklist
This article has covered the following key knowledge points:
- The main legal duties and restrictions in credit control, including prohibition of harassment and the need for confidentiality
- The requirement to act ethically, including integrity and fairness in all credit recovery activities
- The application of professional codes and the importance of documented, respectful communication
- Typical risks and consequences of unethical or unlawful activity in credit control
Key Terms and Concepts
- credit control
- confidentiality
- harassment
- integrity
- objectivity