Glossary
What is a credit limit?
What a customer credit limit is, how to set one, and what happens when a new invoice would cross it.
Updated
In short
A credit limit is the most a seller lets one customer owe at any time. SimpleERP stores a credit limit on each customer and warns on the invoice when the new amount would cross it.
A credit limit is the maximum amount a seller lets one customer owe at any time. When unpaid invoices plus a new sale would cross it, the seller holds the sale, asks for a payment first or raises the limit. It caps how much is owed, while the credit period caps how long; most businesses that sell on credit set both for each customer.
Credit limit: a worked example
Sri Murugan Traders has a credit limit of ₹2,00,000 and already owes ₹1,47,205. Lakshmi Steel prepares an invoice for the remaining 15 racks: ₹74,850 plus 18% GST of ₹13,473, a total of ₹88,323.
| Amount | |
|---|---|
| Already owed | ₹1,47,205 |
| This invoice | ₹88,323 |
| Owed after posting | ₹2,35,528 |
| Credit limit | ₹2,00,000 |
| Over the limit by | ₹35,528 |
FAQ
Questions, answered
How do I decide a customer's credit limit?
Start from what they buy in one credit period. A customer who buys ₹1,00,000 a month on Net 30 needs a limit of about ₹1,00,000 to ₹1,50,000. Begin lower for new customers and raise it as they pay on time.
Does a credit limit include GST?
It should. The customer owes you the invoice total including GST, so compare the limit with the full amount outstanding. SimpleERP checks the limit against the customer's receivable plus the invoice's grand total.
Can SimpleERP block an invoice over the credit limit?
SimpleERP does not block an invoice over the credit limit. It warns, naming how much the customer owes and what the invoice adds, and leaves the decision to whoever posts the invoice. Use roles so that only people trusted to make that call can post invoices.
Should I have a credit limit if I already have credit days?
Yes. Credit days stop invoices staying unpaid too long; a credit limit stops the total growing too large before anything is overdue. A customer who places many orders in one week can be within terms and still owe far more than you meant to lend.
Related
Keep reading
Credit period
The days a customer has to pay after the invoice date; invoice date plus credit period is the due date.
Read moreAccounts receivable
Money customers owe for goods and services already invoiced.
Read morePayments & receivables
Receipts and payments allocated oldest first, receivables and payables ageing, and statements.
Read more
Run your whole business from one simple place.
Seven days free. No card. Your first GST invoice in minutes.