A buyer credit limit is an important part of Trade Credit Insurance.

It represents the maximum amount of outstanding credit exposure the insurer is prepared to insure for a particular customer.

How is a credit limit determined? #

The insurer can consider information such as:

• Financial statements.
• Payment history.
• Industry conditions.
• Credit information.
• The buyer’s trading performance.
• Country risk.
• The amount of credit requested.

The insurer uses this information to assess the likelihood of the customer paying its debts.

Is the credit limit the amount I am allowed to sell? #

Not necessarily.

A business can make its own commercial decision about how much credit to provide to a customer.

However, amounts above the insured credit limit may not be protected by the Trade Credit policy.

For example, if the insured credit limit is $100,000 but the customer owes $140,000, the additional exposure may fall outside the insured limit.

When should a credit limit be requested? #

Ideally before a significant credit exposure is created.

The business should consider the highest outstanding balance it expects at any time, taking into account:

• Order values.
• Payment terms.
• Seasonal sales.
• Expected growth.
• Existing unpaid invoices.

Are credit limits permanent? #

No.

Trade Credit insurers monitor buyers and can review limits as financial information or market conditions change.