How do you set a business credit limit for a customer?
Business Credit Reports
Answer
Set a customer’s credit limit by assessing its capacity to pay, the total exposure your trading pattern creates and your organisation’s risk policy. Use available financials, credit assessments and payment history as evidence. Include open invoices and committed deliveries without double counting, then document approval, conditions and review triggers.
Calculate the peak exposure you may actually carry
An order value alone understates risk when invoices remain unpaid while more goods ship. Map the order-to-cash cycle. Establish which commitments count toward your limit and when cleared receipts reduce exposure. Factor in realistic payment timing.
- Open invoices still at risk.
- Unbilled deliveries and other included commitments.
- Incremental exposure from the proposed order.
Choose terms and controls as well as a number
Consider deposits, shorter terms, staged delivery or appropriate security alongside the limit. Assess whether those controls reduce the exposure in practice. Record who can approve exceptions and what events suspend further credit. The calculator below illustrates exposure arithmetic; it does not recommend a credit limit.
Illustrative example
Measure the gap before approving the order
Illustrative scenario: £60,000 open invoices plus £20,000 unbilled deliveries plus a £30,000 proposed order equals £110,000 exposure. Against a £100,000 internal limit, the gap is £10,000 before new receipts or approved changes.
Calculate your potential exposure
Illustrative calculation in GBP. Keep the inputs distinct to avoid double counting. This does not assess creditworthiness or recommend approval.
£60,000 invoices + £20,000 unbilled deliveries + £30,000 proposed order = £110,000. No receipts or other offsets assumed.
What to check
- Peak exposure calculation
- Counterparty capacity
- Terms and valid protections
- Named approver and review events
Frequently asked questions
Should I use the report’s limit automatically?
No. Check its methodology and compare it with your own exposure policy.
What is the exposure formula?
Add the distinct exposures recognised by your policy and deduct cleared receipts or valid offsets.
Should VAT be included?
Define gross or net exposure consistently with your accounting, contracts and credit policy.
Can I count an expected payment as received?
Do not treat an uncleared expected receipt as cleared cash.
How do deposits affect exposure?
A received and applicable deposit may reduce the amount at risk; confirm its contractual treatment.
Should committed orders count?
Follow your policy and distinguish cancellable orders from commitments already creating risk.
Can a large margin justify more credit?
Margin affects loss tolerance but does not establish the customer’s ability to pay.
Should connected entities share a group cap?
Consider a group cap where risks or funding are correlated.
When should a limit change?
On relevant new evidence, exposure changes or scheduled policy reviews with approval.
Does the calculator approve credit?
No. It illustrates arithmetic using the figures you enter.
Sources & further reading
Source references support the definitions. Process suggestions and examples are editorial guidance.
- Creditsafe: company scores and recommended credit limits
One provider’s explanation of its score and recommended limit methodology.
- UK Cabinet Office: supplier economic and financial standing
Public procurement guidance on assessing and monitoring supplier financial capacity.
Business Credit Reports provides commercial company information. Apply your organisation’s policy and appropriate specialist review. Suggest a correction.
For more detail: Business credit scores explained →
Need help with a company report?
Talk to our team about company coverage, reports or data access.