What is Credit limit Recommendation?
Credit limit recommendation is a suggested guideline to help businesses more easily extend trade credit to their customers given the level of acceptable risks.
How Credit Limit Recommendation Works?
These recommendations depends on the size of business, field of business, and likelihood of slow payments or financial distress.
Typically, the credit limit recommendation offers two options on the dollar amount of credit a business may get:
Conservative limit is a dollar benchmark in case the strategy is to expand less credit to minimize the risk.
Aggressive limit is a dollar benchmark when your strategy is to expand more credit with likely more risk.
The Importance of Credit Limit Recommendation
These suggested limits are useful when coping with new client or prospect with whom you've not set credit record previously.
The Bottom Line
With credit limit recommendation, one can instantly know how well a business is able to return. It's all about behavior of a credit customer. When they meet net payments, they can be approved for gradual raise in their credit limits. In case, when payment habits fall behind or debt increases to a extreme level, then credit issuer will consider you risky.