Credit size

When you as a business provide credit to your customers, two key concepts are crucial to keep track of: credit time and credit size. In this article, we focus on credit size and why it's important to actively work with this aspect as part of your company's credit policy.

Credit size refers to the maximum amount a customer can purchase on credit and is often synonymous with terms like credit limit or credit max.

Why work with credit sizes?

Extending credit always involves a credit risk. Whether it's a debt or an invoice with a longer payment term, there's always the possibility that the customer will not pay on time - or not pay at all. This can happen in the event of bankruptcy, death or other unforeseen financial events. By setting appropriate credit limits, you as a creditor can reduce the risk of loss and ensure that your credit terms are in line with your customer's financial situation.

How are credit sizes determined?

It is up to each company to decide how much credit they will provide. This can range from a cash payment (no credit) to significant sums depending on the customer and their financial history. A thorough analysis of the customer's past payment patterns, accounting information and any debt records should be included in the assessment of the amount of credit.

Often, new customers will be granted a lower credit, which can gradually increase as they prove to be reliable payers. Existing customers with a good payment history, on the other hand, may have the opportunity to get a larger credit size.

Credit as a competitive advantage

In many industries, credit size is a key competitive parameter. This is especially true in industries such as the food industry, where restaurants and cafés often buy raw materials on credit with a payment term of 30 days, for example. This allows them to sell the goods and receive payment from their customers before they have to pay the supplier themselves.

For businesses in these industries, offering favorable credit terms and appropriate credit sizes can help attract and retain customers.

Determining credit size - part of credit management

Determining the right credit size for each customer is an important part of overall credit management. To avoid unnecessary risks, the credit size should not be the same for all customers. The customer's financial status, payment history and any bad debt records should be taken into account.

Having a flexible approach to credit sizes means that you can adapt the credit to the customer's situation, but also adjust it continuously if the customer's circumstances change.

Get help with credit sizes with Qatchr

At Qatchr, we have developed an online platform that helps you run credit checks on both private individuals and businesses. Our system allows you to make better decisions about credit sizes and credit periods based on continuous data analysis.

With our tool, you can get recommendations that help you minimize the risk of loss by ensuring your customers only get the credit they can handle. We can't eliminate the risk of bad debt, but we can help you reduce it significantly.