Credit Limit
Also called: customer credit limit
What is Credit Limit?
A credit limit is the maximum amount a business allows a single customer to owe at any time. Beyond it, further supply is stopped until payments bring the balance back down.
Why Credit Limit matters
Concentrated credit is where bad debts come from. One customer at three times a sensible limit can take a year's profit with them when they fail.
Credit Limit formula
Available credit = Credit limit − Current outstanding − Orders in progress
Include undelivered orders, or the limit is understated.
How Credit Limit works in practice
Set limits from the customer's payment history and your own exposure tolerance, review them periodically, and enforce them at the point of order rather than at the point of collection.
Frequently asked questions
Start small, supply against advance or on delivery, and raise it once a payment record exists.