Credit length

In every credit, loan and debt relationship, there are two basic parameters: the length of credit and the amount of credit.

These parameters help manage and reduce lender/creditor risk, as both credit length and credit maximum can contribute to this.

Read more about credit length in the article below and learn all about it.

Why work with credit length?

Any debt, credit or loan involves a risk for the creditor/lender. The risk is that the credit may not be repaid - in full or in part.

The lender/creditor can, of course, perform a credit assessment of the customer to assess whether the customer should have credit, but can also use credit length and credit maximum as tools.

Basically, good, liquid customers with healthy finances should be able to get larger and longer credits, while customers with weaker financial conditions should have smaller credits and shorter credit lengths - maybe even no credit at all.

How long should a line of credit be?

There is no clear-cut answer to how long a line of credit should or must be; it can range from 0 days to infinity. The length of credit should reflect the risk the lender is taking on.

The more security there is behind the credit, loan or debt (e.g. retention of title, attachment or similar), in combination with positive financial circumstances, the longer the credit period can be allowed to be.

Some banks and lenders offer credit and loans without maturity, provided there is sufficient security and the lender feels confident that the borrower will pay their installments and interest.

Most credit in B2B relationships, such as those related to the purchase of goods, typically have a term of between 8 and 30 days.

Credit length as a competitive parameter

Many companies are reluctant to extend credit and are often even more reluctant to extend long-term credit.

Lange kreditter indebærer en øget risiko for, at beløbet ikke bliver betalt helt eller delvist på grund af ændringer i debitors økonomiske situation. Desuden påvirker lange kreditter kreditors cashflow og likviditet negativt.

In many industries, credit and thus the length of credit is used as a competitive parameter.

This applies to many craft shops and catering businesses, for example. With the right credits, a restaurant can buy food, process and sell it, for example, putting money in the till before the invoice to the supplier has to be paid.

This creates strong liquidity for the restaurant and makes it attractive to choose this particular supplier over companies that do not offer the same credit and credit lengths.

Get help with the right credit length with Qatchr

Collectia has developed Qatchr - an online portal that can help with everything from KYC, credit checks and credit recommendations to credit sizes and credit lengths.

Qatchr relies on a wide range of data such as industry, company size and financial figures and uses this information to give you a recommendation for the right credit length.