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Accounts Payable & Receivable › Credit Control

What is a credit limit and how is it set?

Beginner

Answer

A credit limit is the maximum outstanding balance a customer may owe at any time. It's set from creditworthiness (credit reports, scores, financials, payment history), the customer's expected order volume, and the company's risk appetite. Orders that would breach the limit are held or require prepayment.
Real-world example A customer with strong credit and $40k monthly orders is granted a $50k limit, reviewed as their history builds.

Common follow-ups: What inputs drive a credit limit? | What happens when an order exceeds the limit?