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Advising Customers of their Credit Limits
By Michael C. Dennis, MBA, CBF

Within the commercial credit community, there is an ongoing debate about whether or not customers should be told their credit limits. I think it depends on how your company uses credit limits. In some companies, a credit limit can be defined this way: The credit limit is the maximum amount that we will ship to a customer without updating the credit file and making a decision about whether an increase is warranted. In other companies, a credit limit is something quite different. It is the maximum amount that will be shipped to the customer - period.

The advantages of sharing credit limits with customers include:

  • The opportunity to talk to the customer about the company's payment expectations

  • The chance to discuss how the credit limit might be increased in the future

  • An opportunity to offer advice that may help a marginal customer to become more successful

  • Doing so reduces the chances of having to tell a customer that a pending order cannot be released because the customer has exceeded the credit limit.

Some of the disadvantages of sharing the credit limit with the customer include these:

  • Doing so may damage the business relationship

  • The customer may be offended that the creditor has offered what the customer considers to be an insultingly small credit limit

  • The customer may decide to self-regulate their purchases so the credit limit is not exceeded, even when the creditor might increase the credit limit if asked to do so

  • Finally, there is no good way to explain to a customer or an applicant how you established the credit limit for their company.

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