Credit Limit
The maximum amount of credit a supplier extends to a customer at any one time before further supply is held or paid up front.
What it means
A credit limit is the ceiling on how much a customer can owe on account at any one time. Once outstanding invoices reach the limit, further orders are usually placed on hold until the balance is paid down. Limits help a business cap its exposure to any single customer and spread risk across the ledger.
Setting a sensible limit
Limits are typically based on a credit check, trading history, security held and the customer's expected order volume. Review limits regularly, because a figure set at onboarding may no longer suit a customer two years on. You can model exposure and ageing with the Merion business tools before deciding.
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