Customer Credit Limits

Customer Credit Limits

Credit limits help you manage the maximum credit amount you're willing to extend to customers, preventing over-exposure to credit risk. This guide explains how to set up and manage customer credit limits in EquiBillBook.

What is a Credit Limit?

A credit limit is the maximum amount of credit (outstanding balance) that you allow a customer to have at any given time. When a customer's outstanding balance reaches the credit limit, you may restrict further sales on credit until payments are received.

Why Set Credit Limits?

• Risk Management: Protect your business from excessive credit exposure
• Cash Flow: Ensure timely payments and better cash flow management
• Customer Management: Encourage customers to make payments on time
• Financial Control: Set appropriate credit limits based on customer relationship and payment history

Setting Credit Limits for Customers

To set a credit limit for a customer:

While Creating a Customer

1. Go to Customers → Add Customer
2. Scroll to the Financial Settings section
3. Enter the credit limit amount in the "Credit Limit" field
4. Enter 0 if you don't want to set a limit, or leave blank for unlimited credit
5. Save the customer

Editing Existing Customers

1. Go to Customers → Customer List
2. Find and edit the customer
3. Navigate to the Credit Limit field
4. Enter or update the credit limit amount
5. Save the changes

Understanding Credit Limit Values

• Zero (0): No credit allowed - customer must pay upfront
• Positive Amount: Maximum credit allowed (e.g., 50000 means customer can have up to ₹50,000 outstanding)
• Blank/Unlimited: No credit limit restriction (use with caution)

Factors to Consider When Setting Credit Limits

Consider these factors when determining appropriate credit limits:

• Payment History: Customers with good payment history can have higher limits
• Business Relationship: Long-term customers may warrant higher limits
• Customer Type: Corporate customers might have higher limits than retail customers
• Business Size: Larger businesses can typically handle higher credit amounts
• Risk Assessment: Evaluate the financial stability of the customer
• Industry Standards: Consider typical credit terms in your industry

Credit Limit Enforcement

When credit limits are set, the system may:

• Warn on Invoice Creation: Show a warning when creating invoices that would exceed the limit
• Prevent Credit Sales: Block creation of credit invoices when limit is exceeded
• Display Current Balance: Show current outstanding balance vs. credit limit
• Credit Available: Display remaining credit available (limit minus current balance)

Note: The exact behavior depends on your system configuration and settings.

Monitoring Credit Limits

Regularly monitor customer credit usage:

• Customer Statements: Review customer statements to see outstanding balances
• Credit Reports: Generate reports showing customers near or exceeding limits
• Dashboard Alerts: Some systems show alerts for customers approaching limits
• Outstanding Reports: Review accounts receivable reports to identify high-risk customers

Updating Credit Limits

You may need to update credit limits based on:

• Improved Payment History: Increase limits for customers with consistent payments
• Increased Business: Adjust limits as business relationships grow
• Payment Issues: Reduce limits for customers with payment delays
• Seasonal Changes: Adjust limits based on seasonal business patterns

Credit Limit Best Practices

• Start Conservative: Begin with lower limits for new customers
• Review Regularly: Periodically review and adjust limits based on performance
• Document Decisions: Keep records of why specific limits were set
• Communicate Clearly: Inform customers about their credit limits and terms
• Monitor Closely: Watch customers approaching limits and follow up proactively
• Establish Policies: Create clear policies for credit limit approval and updates

Credit Limit vs. Payment Terms

Credit limits and payment terms work together:

• Credit Limit: Maximum outstanding amount allowed
• Payment Terms: Time period within which payment is expected (e.g., Net 30, Net 60)
• Both should be considered when managing customer credit

Troubleshooting

Customer Cannot Make Purchase: Check if credit limit is set to 0 or if outstanding balance exceeds the limit. Review customer's payment status and consider adjusting the limit if appropriate.

Credit Limit Not Working: Verify that credit limit enforcement is enabled in settings, check that the limit is set correctly (not blank), and ensure the system is calculating outstanding balance correctly.

Related Topics

• Creating Customers
• Customer Payment Terms
• Customer Outstanding Balances
• Customer Payments
• Accounts Receivable Reports