Credit line

A line of credit is a flexible type of loan typically provided by a bank or company.

The line of credit differs from a bank loan or mortgage, for example, by being much more flexible for both borrower and lender.

An authorized line of credit can be drawn on as needed or not used at all if the need does not arise.

The lender/creditor typically earns money on interest when the credit line is used, but in certain situations, the agreement may also be designed so that the mere possibility of drawing on the credit line triggers a fee to the issuer.

There are many related words and synonyms for the word line of credit - the most common are credit and overdraft.

Different types of credit line

There are many types of credit lines. The most common line of credit in Denmark is probably the one you know from the bank, where it is typically called overdraft.

But in B2B relationships, there are many other types of credit lines.

Many companies offer lines of credit where customers can consume services, products or benefits and are only billed when they reach a certain time of the month or a certain amount.

For example, a local DIY store that allows their customers to shop for a certain amount, which is then invoiced later.

This allows credit lines to be customized and designed in many different ways.

Why work with credit lines?

There are many good reasons to work with credit lines, both for the creditor and the debtor (lender and borrower).

For the customer, a line of credit allows them to cover temporary liquidity needs or optimize cash flow by purchasing, consuming and perhaps even invoicing products before settling with creditors.

The creditor gains a competitive advantage by offering credit lines over competitors who do not.

Credit line management

There are many ways to assign, manage and administer credit lines.

As a creditor/lender, it's important to be aware that all lending carries a risk of non-payment or late payment. The reasons can be many, from the debtor/borrower's inability or unwillingness to pay to death or bankruptcy.

Precisely because of this risk, it is important that you as a creditor are able to manage your credit effectively, including ensuring that you provide credit lines to the right customers, set appropriate credit sizes and ensure timely settlement.

At Collectia, we have developed the tool Qatchr - an online tool for efficient management of your customers. Qatchr helps you collect credit information, perform credit monitoring and data washing of your customers.