Creditmax

Credit limit is an essential concept in credit and lending. Creditmax refers to the maximum amount that a company, creditor or other lender wants to grant to a debtor or borrower.

Credit max is also referred to as credit maximum, credit limit or credit line.

In practice, the terms credit limit and credit limit are used for invoice purchases on credit, while credit limit is often used for loans. Legally, however, they have the same meaning.

What is the purpose of a creditmax?

The purpose of a credit limit is to ensure that a creditor or lender never extends so much credit that there would be serious consequences if you were to lose or write off the amount of credit extended.

The company's credit limit should be included in the company's credit policy and all employees involved in sales or lending should be aware of the company's credit and credit limit policies.

How to set the right credit limit?

There are many ways to set a credit limit, but it should be based on a number of financial factors about the debtor/borrower's financial situation.

Parameters that can influence a credit max can be:

• The company's public accounts
• Other loan conditions
• Payment history
• Industry sector

Some companies choose to set a credit limit of, for example, DKK 50,000 for all new customers, while other companies only grant credit after the customer has been active for 6 months.

Setting the right credit limit can be difficult and is often based on history and experience with a certain type of customer, industry or similar.

Your credit limit should never exceed an amount so large that it could have major consequences for your business if, for example, the company goes bankrupt or the debtor chooses to pay their invoices late.

Creditmax as a sales parameter

Some industries provide larger and longer credits than others, such as the food and construction industries, where many larger suppliers provide large credits.

The advantage of long credit is that the customer can often buy an item and sell it again before it has to be settled with the supplier.

Thus, credit and credit max can be a sales parameter where the buyer will tend to deal with the companies that provide the most credit.

Get help finding the right credit limit

Setting the right framework for your credit policy - including credit limits - can be difficult or even impossible for many.

With Qatchr, you get an online tool that enables you to give a qualified estimate of a credit limit for a customer.

Qatchr's advanced algorithm takes into account a wide range of financial factors and gives you an estimate of what Qatchr thinks the credit max should be.