In short
- 01A credit limit is the most a customer may owe you at any moment, across every store and every invoice.
- 02Start from behaviour: monthly purchases × how long they actually take to pay, plus a buffer, then review it.
- 03Available credit = limit − everything they owe (open invoices and account sales), not just the latest invoice.
- 04Enforce it everywhere credit is given: the till, invoices and orders. A limit checked in one place is a suggestion.
- 05Send statements and watch aging. Credit risk shows up in the 31–60 day column before it becomes a bad debt.
On this page
- In short
- What is a customer credit limit?
- How do you decide what limit to give?
- How do you work out available credit?
- What should staff do when a sale would go over the limit?
- Where should the credit limit be enforced?
- How do you keep balances from going bad?
- How does Momentum enforce credit limits?
- Questions people ask
To set a customer credit limit, estimate the balance a good customer normally carries (roughly their monthly purchases multiplied by the months they take to pay), add a buffer, and review it against how they actually pay. Enforce it wherever credit is extended, at the till as well as on invoices, by checking each new sale against available credit, which is the limit minus everything the customer already owes. For hardware stores, pharmacies with account customers and distributors, this single control prevents most bad debt.
What is a customer credit limit?
A credit limit is the maximum balance you allow a customer to owe you. It covers every way they buy on account: sales on account at the till, invoices, and orders you have agreed to supply. It is separate from payment terms (how many days they have to pay) and from a deposit or prepayment (money they have paid you in advance).
For a multi-store business, the limit belongs to the customer, not the store. A contractor who is at their limit at one branch should not be able to drive to another and start again.
How do you decide what limit to give?
There is no formula that removes judgement, but a starting point based on behaviour beats a round number:
For a new customer with no history, start lower, with trade references or a deposit, and raise the limit after a few months of on-time payment. Review every limit at least once a year, and immediately when a customer starts paying late.
How do you work out available credit?
Available credit is the limit minus everything outstanding, not just the most recent invoice.
- Amount
- $5,000.00
- Amount
- $3,200.00
- Amount
- $650.00
- Amount
- $3,850.00
- Amount
- $1,150.00
- Amount
- $1,400.00
- Amount
- $250.00
| Amount | |
|---|---|
| Credit limit | $5,000.00 |
| Open invoice, 38 days old | $3,200.00 |
| Sale on account at the till, last week | $650.00 |
| Owed in total ($3,200 + $650) | $3,850.00 |
| Available credit ($5,000 − $3,850) | $1,150.00 |
| New order | $1,400.00 |
| Over the limit by ($1,400 − $1,150) | $250.00 |
The sensible options are to take $250 or more as payment now, collect on the 38-day invoice, reduce the order, or have someone with authority approve the excess. What shouldn't happen is the sale going through because it was rung up at a different till.
What should staff do when a sale would go over the limit?
A limit that staff can't act on turns into a limit they work around. Give them a short list of allowed responses, in this order:
- 1Take a payment now for at least the amount over the limit, and put the rest on account.
- 2Split the order: supply what fits within available credit today and the rest when a payment arrives.
- 3Collect on overdue invoices first. A customer with an invoice past terms often pays it on the spot to get the new order out.
- 4Ask for approval. A named manager with the permission can let the sale through, and the approval is recorded with their name.
Whichever you choose, the customer hears the same answer at every branch. That consistency matters: a customer who learns that one store is "flexible" will buy all their credit there.
Limits should also move with the relationship. Raise a limit after months of on-time payment and a steady increase in orders; lower it, or move the customer to cash, when payments slip into the 31–60 day column. Review limits at a fixed time each year so nobody's limit is left over from a different business.
Where should the credit limit be enforced?
Everywhere credit is extended, in the same way:
- At the till, when a sale is put on account instead of paid.
- On invoices, when an invoice is approved with a balance still due.
- On orders you commit stock to, before you pick and deliver.
- Across locations, using one balance per customer, not one per store.
- With named overrides: a manager may approve a sale over the limit, and the approval is recorded.
How do you keep balances from going bad?
Limits stop new debt; follow-up recovers the old. Two tools do most of the work: the aging report and the customer statement.
- What it usually means
- Within terms
- Action
- None
- What it usually means
- Forgot, or slow paperwork
- Action
- Friendly reminder and a statement
- What it usually means
- Cash flow trouble or a dispute
- Action
- Call; put new credit sales on hold
- What it usually means
- Real risk
- Action
- Stop credit; agree a payment plan
- What it usually means
- Likely bad debt
- Action
- Formal collection; decide on a write-off
| Aging bucket | What it usually means | Action |
|---|---|---|
| Current | Within terms | None |
| 1–30 days overdue | Forgot, or slow paperwork | Friendly reminder and a statement |
| 31–60 days overdue | Cash flow trouble or a dispute | Call; put new credit sales on hold |
| 61–90 days overdue | Real risk | Stop credit; agree a payment plan |
| 90+ days overdue | Likely bad debt | Formal collection; decide on a write-off |
Send statements monthly, listing every open invoice, payment and credit, so disputes surface early. Most "late payers" are waiting on a credit note or a missing delivery, and a statement brings that out.
How does Momentum enforce credit limits?
In Momentum by Ltiora each customer can have a credit limit, with a company-wide default for everyone else. The limit is checked at the till when a sale goes on account and when an invoice with a balance due is approved. If a customer has no limit and there is no default, they get no credit, which makes extending credit a choice your business makes. The balance belongs to the customer across every location.
Invoices, sales receipts, estimates, sales orders and credit memos all feed the same balance, and customer statements and the Invoice Aging report show who owes what and for how long. Payments post to the double-entry books. Permissions decide who may override a limit, and each override is recorded in the audit trail.
Questions people ask
Should walk-in retail customers get credit?
Usually not. Credit makes sense for known account customers, such as contractors, institutions and trade buyers, where the relationship and the volume justify the risk and the admin.
What payment terms are normal for wholesale customers?
Thirty days is common, with 7 or 14 days for smaller or newer accounts. Whatever terms you set, base the credit limit on how the customer actually pays, not on the terms.
What is the difference between a credit limit and a deposit?
A credit limit lets a customer owe you money. A deposit or prepayment is money the customer has paid you in advance, which is applied to later sales.
How often should credit limits be reviewed?
At least once a year for every account, and straight away when a customer starts paying late, their order pattern changes sharply, or they ask for a higher limit.
A credit limit only protects you if it is realistic and checked everywhere the customer can buy on account. Set it from how the customer actually buys and pays, check each sale against the whole balance at every store and on every invoice, and use statements and aging to chase balances before they go bad.
Put a customer over their limit, on purpose
In a demo we'll give a customer a limit in Momentum, try a sale on account at the till and an invoice that would exceed it, and show the override, the statement and the aging report.
