Supplier Credit Limits

Supplier Credit Limits

Credit limits help you manage the maximum credit amount you're willing to accept from suppliers, helping you control your accounts payable. This guide explains how to set up and manage supplier credit limits in EquiBillBook.

What is a Supplier Credit Limit?

A supplier credit limit is the maximum amount of credit (outstanding payable) that you allow from a supplier at any given time. When your outstanding balance with a supplier reaches the credit limit, you may need to make payments before placing new orders.

Why Set Supplier Credit Limits?

• Financial Control: Manage your accounts payable and cash flow
• Budget Management: Control spending with specific suppliers
• Payment Planning: Plan payments based on credit limits
• Relationship Management: Maintain healthy supplier relationships by managing credit exposure

Setting Credit Limits for Suppliers

To set a credit limit for a supplier:

While Creating a Supplier

1. Go to Suppliers → Add Supplier
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 supplier

Editing Existing Suppliers

1. Go to Suppliers → Supplier List
2. Find and edit the supplier
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 - you must pay upfront for all purchases
• Positive Amount: Maximum credit allowed (e.g., 50000 means you can have up to ₹50,000 outstanding with this supplier)
• 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: Suppliers with flexible payment terms can have higher limits
• Business Relationship: Long-term suppliers may warrant higher limits
• Supplier Type: Primary suppliers might have higher limits than secondary suppliers
• Cash Flow: Set limits based on your cash flow capacity
• Purchase Volume: Higher purchase volumes may require higher limits
• Payment Terms: Consider supplier payment terms when setting limits

Credit Limit Monitoring

Regularly monitor supplier credit usage:

• Supplier Statements: Review supplier statements to see outstanding balances
• Credit Reports: Generate reports showing suppliers near or exceeding limits
• Dashboard Alerts: Some systems show alerts for suppliers approaching limits
• Outstanding Reports: Review accounts payable reports to identify high-exposure suppliers

Updating Credit Limits

You may need to update credit limits based on:

• Improved Relationship: Increase limits for suppliers with good relationships
• Increased Business: Adjust limits as purchase volumes grow
• Cash Flow Changes: Reduce limits during tight cash flow periods
• Seasonal Changes: Adjust limits based on seasonal business patterns

Credit Limit Best Practices

• Start Conservative: Begin with lower limits for new suppliers
• Review Regularly: Periodically review and adjust limits based on business needs
• Document Decisions: Keep records of why specific limits were set
• Monitor Closely: Watch suppliers approaching limits and plan payments accordingly
• Establish Policies: Create clear policies for credit limit approval and updates
• Balance Cash Flow: Set limits that align with your cash flow management strategy

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 supplier relationships

Troubleshooting

Cannot Place Purchase Order: Check if credit limit is set to 0 or if outstanding balance exceeds the limit. Review supplier'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 Suppliers
• Supplier Payment Terms
• Supplier Outstanding Balances
• Supplier Payments
• Accounts Payable Reports