What is a credit limit?
Short answer: a credit limit is the maximum amount a customer may owe you at any given time, including orders delivered but not yet invoiced.
The basic method
Combine three perspectives and take the lowest result:
- Need: what does the customer need? (average monthly purchases × payment term in months)
- Financial capacity: what can the customer afford? Often a percentage of equity, for example 10% with a healthy solvency ratio.
- Your own risk appetite: what loss can you absorb? For example, a maximum of 2% of your own equity per customer.
Worked example
Customer: trading company BV, equity €800.000, solvency 34%, pays in 41 days on average against agreed terms of 30 days, no insolvency notices.
- Need: €40.000 per month × 1,5 months = €60.000
- Financial capacity: 10% × €800.000 = €80.000
- Your own ceiling: 2% × €2.500.000 = €50.000
Limit: €50.000. The slow payment of 41 days is a reason not to set the limit any higher and to monitor the customer monthly.
Risk categories as a starting point
| Profile | Indicators | Terms |
|---|---|---|
| Low | Positive equity, pays on time | 30 days, full limit |
| Medium | Inconsistent payment behaviour | 14–30 days, limit 50% |
| High | Negative equity or arrears | Advance payment or security |
| Stop | Insolvency notice | Cash or iDEAL only |
Who decides?
Set approval limits: sales up to €10.000, for example, finance up to €50.000, and senior management above that. Without delegated authority, every limit becomes a debate.
Reassessment
- Standard: every quarter
- Immediately: following a limit request, a payment more than 15 days overdue or an alert from the insolvency register
- Annually: a full review based on new annual figures
Use our calculation tools to work through limits and risk scores, and request a credit report below to support your assessment.
From explanation to a company file
- Check a company's creditworthiness
Combine registration details, annual accounts, payment history and insolvency information before doing business.
- Credit report: example and request
View a clearly fictional file, its sources and limitations, and request credit information.
Sources and scope
Examples and policy choices in this article are illustrative, not a current quotation, fixed standard or financial or legal advice. The editorial revision date relates to the summary, structure and source references; it is not a reference date for the underlying data.
| Primary source | What is it used for? |
|---|---|
| KVK (Dutch Chamber of Commerce) — checking business partners | Company identification and checks on business partners. |
| De Rechtspraak — Central Insolvency Register | Official insolvency notices and available public reports; check the relevant entity and the date of the court ruling. |
Source links support the topic mentioned, but do not automatically substantiate all percentages, time frames or examples in this article. Check current terms and rules with the responsible authority.
Request credit information with sources and reference dates
