Managing customer credit (udhaar) in a kirana shop

How to manage udhaar: the short answer

Give credit only to customers you know, give each one a limit, and record every credit bill and every payment the moment it happens. Remind on a fixed day, politely, with the exact amount. Stop new credit when a customer is past the limit or past the due date until they pay something.

That is the whole system. The rest is making it a habit that your staff follow even when you are not at the counter.

Why udhaar needs a system

Take a kirana in Thrissur with 80 credit customers who owe an average of ₹2,500 each. That is ₹2 lakh of the owner's money sitting with customers. That money could have paid a distributor and earned a cash discount, or stocked the shelves for Onam.

The problems usually come from three places: no limit, so balances keep growing; entries missed during rush hour; and no fixed reminder routine, so the owner feels awkward asking. Each is fixable.

Setting credit limits

A limit is the most a customer can owe at any time. Set it per customer, not one number for everyone.

Review limits every three months. Raise them for people who pay on time. Lower or freeze them for people who keep slipping.

Decide what staff do when a bill would cross the limit. A good rule: the cashier cannot allow it alone. The owner or manager must approve, or the customer pays part in cash or UPI.

Recording credit and payments

• Every credit sale is a proper bill in the customer's name, with items and amounts. "Ravi, ₹450" in a notebook is not enough when Ravi disputes it.
• Every payment gets a receipt, even ₹100. Note whether it was cash or UPI.
• Part payments against a bill are common: ₹1,000 bill, ₹600 paid now, ₹400 on credit. Record it as a split payment, not as a full credit bill.
• Returns reduce the balance. Enter them as returns, not as payments.
• Show the balance to the customer whenever they buy on credit. Most disputes disappear when people see their balance often.

Digital khata vs notebook

The biggest advantage of a digital khata is not speed. It is that the credit bill and the stock movement are the same entry, so nothing sold on credit is forgotten.

If you switch from a notebook, add each customer's current balance as an opening balance on one day. Then stop using the notebook entirely. Running both leads to double entries.

Reminders that do not offend

Customers rarely mind a reminder. They mind being reminded in front of others, or being reminded wrongly. So:

• Remind on a fixed day for everyone, such as the 5th of the month. Then it is a routine, not a personal remark.
• Send it privately, on WhatsApp or SMS, not across the counter.
• Give the exact amount and the date of the last payment.
• Make paying easy: include a UPI ID or QR.
• Keep the tone of a neighbour, not a bank.

A sample message you can adapt:

Namaskaram Suresh chetta. Your balance at Sree Krishna Stores is ₹2,340 as of 5 November. Last payment ₹1,500 on 8 October. You can pay at the shop or by UPI. Thank you for shopping with us.

If there is no payment after two reminders, the owner should speak to the customer personally, in a quiet moment. Ask when they can pay and agree on a part payment.

Warning signs to watch

• A customer who always paid by the 10th now pays on the 25th.
• Payments get smaller while purchases stay the same, so the balance creeps up.
• A customer starts buying on credit at your shop and paying cash elsewhere.
• Requests to "add it to the account" for costly items they never bought before.

When you see two of these, hold the limit where it is and talk to the customer before the balance grows.

Should you charge interest?

Generally, no. Interest turns a friendly khata into something like a loan. Customers resent it, few pay it, and it can raise legal and tax questions. If you want to reward prompt payers, a small discount for paying by the due date works better than a penalty for paying late. If you still want to charge interest, agree it in writing beforehand and check with your CA or lawyer first.

Old dues

Dues older than three months rarely get paid in full unless you act. Try this order:

1. Stop new credit for that customer until they pay something.
2. Offer a plan: the old balance in 3–4 instalments, alongside cash purchases.
3. For a family in real hardship, settle for part and close the account.
4. Write off what is clearly lost. Ask your CA how to show it in your accounts.

Note the legal clock. Under the Limitation Act, 1963, a suit for the price of goods sold and delivered generally must be filed within three years, counted from delivery, or from the end of an agreed credit period. A written acknowledgement of the debt by the customer can restart that period. For anything large, speak to a lawyer early rather than late.

A credit policy template you can adapt

Write your policy down, keep a copy at the counter and tell your staff. Change the numbers to suit your shop.

Credit policy: [Shop name]

1. Credit is given only to customers known to the owner, with a phone number on record.

2. New customers: no credit for the first month; then up to ₹1,000.

3. Each customer has a credit limit. Bills beyond the limit need the owner's or manager's approval, or part payment.

4. Balances are due by the 10th of every month (weekly customers: every Saturday).

5. Every credit bill and payment is entered at once. Staff do not write credit on paper.

6. Reminders go out on the 5th by WhatsApp.

7. If a balance is unpaid for 60 days, new credit stops until a payment is made.

8. No interest is charged.

9. Only the owner can change a limit or write off a balance.

Keeping cash and credit separate at closing

At the end of the day, the cash in the drawer must match cash sales, not total sales. Many shortages that look like theft are just credit bills counted as cash, or a UPI payment of old dues counted twice.

Count UPI and card totals separately and match them with your bank app. Credit sales of the day (say ₹4,600) go to customer balances, not into the drawer total. If you run shifts, close each shift the same way, so a shortage is tied to one shift.

Doing this in Cartix Prime

Credit (khata/udhaar) with limits is on every plan from Starter up. The customer's balance and limit show at the counter. When a bill would go past the limit, it waits for the owner or manager. You can send payment reminders on WhatsApp, and send bills on WhatsApp as a link. Split payment (cash + UPI + card + credit) handles part payments. Shifts and cash closing are on Silver. See kirana store billing software.