Set sensible credit limits

When to run this

Run this play when a client extends credit but has never set a ceiling on any account, so exposure simply grows with order size. The danger is concentration: a business can be quietly profitable right up until one big customer, carrying a balance nobody capped, fails to pay. A credit limit is the seatbelt that keeps a single bad account from writing off a year of margin.

It pairs naturally with the credit-check play — the check tells you what kind of customer you have, and the limit turns that judgement into a hard number the business can actually manage to.

The play (steps)

Help the client set limits that are deliberate and enforceable:

1. Set an opening limit. For a new account, start conservatively, informed by the credit check, trade references and the size of orders the customer realistically places.
2. Tie the limit to evidence. Higher limits should be earned through a track record of paying on time, not granted because a customer asks loudly.
3. Make the limit visible. Record it in the accounting system so the team can see remaining headroom before taking another order.
4. Decide what happens at the ceiling. Agree whether an order that breaches the limit triggers approval, part-payment of the existing balance, or a hold on supply.
5. Review on a schedule. Increase limits for customers who have proven themselves and trim them for those slipping into late payment.
6. Watch concentration. Flag any single customer whose limit is large relative to the whole ledger.

What good looks like

Every credit customer has a number, that number has a reason, and the business knows at a glance how much room is left before an account hits its ceiling. Limits rise for good payers and fall for poor ones, so the ledger rewards reliability. No single debtor is large enough that its failure would threaten the business. The owner sleeps better not because risk is gone, but because it is bounded.

What to say to the client

Make the concentration risk vivid: “What happens to your year if your biggest account simply doesn't pay? If you can't answer that comfortably, that customer's limit is too high. A limit isn't a vote of no confidence — it's the line past which one customer's problem becomes your problem.”

Stress that limits are dynamic. A good payer earns more room over time; a slow payer should see their limit quietly tightened well before the account becomes a genuine problem.

Common mistakes

The first mistake is setting limits and then never enforcing them, so the number in the system is fiction. The second is granting big limits to win or keep an account, turning a sales decision into an unmanaged credit risk. The third is letting a single customer's balance grow far beyond every other account without ever asking what happens if that customer fails. Concentration, not the average account, is what sinks businesses.