Setting Credit Limits

You have your signed credit applications, you are having your customers fill them out and checking references.

Now your stuck.

How do you decide how much credit to extend or if you should extend credit to this person?

There are no set rules for this, each application and responses from the references will be different.  Some things to consider:

  • How long has this person been at their current job?
  • How long have they lived at their current address?
  • How long have they had this bank account at their bank?
  • Does their spouse have a job?
  • Did any of the references have anything negative to say?

If someone is new to a job, or moves often, and changes banks often, they migth be a risk.  So those are some things to consider.  You can even ask them for prior job information if this one is new, or prior bank information and ask them why they switched banks.

ALWAYS start out LOW, as the customer orders and pays you you can re-evaluate the credit limit in 3-6 months.  This will minimize your risk and let you evaluate how this person will order, how they will pay and help you to decide if you want to increase your risk based on your experiences with the new customer.

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