The Advantages and Disadvantages
of Telling Customers their Credit Limits
Michael C. Dennis, MBA, CBF

There is an ongoing debate about whether or not customers should be told their credit limits. To some extent the answer depends on how your company uses credit limits. Specifically, in some companies a credit limit is the maximum dollar amount that we will ship to a customer without updating the credit file and establishing a higher credit limit. But in other creditor companies, the credit limit is the maximum amount that will be shipped to a particular customer.

The advantages of telling customers their credit limits include:

• The customer knows where they stand and can plan purchases accordingly.

• If the customer needs to purchase above its credit limit, it can either pay down the account or pay cash for the new shipments.

• If the customer feels the credit limit is inadequate, a dialogue can be started with the credit department and possible additional information can be shared that would allow the credit manager to increase the credit line.

• If the customer does not qualify for a larger line at this time, the credit manager can discuss how [or under what conditions] the credit limit might be increased in the future.

• Telling a customer their credit limit in advance reduces the chances of having to tell a customer that a pending order is being held and cannot be released.

There are also disadvantages of sharing credit limit information with customers, include these:

• It may damage the business relationship with the customer... specifically, the customer may be offended that the creditor has extended a smaller credit limit than the customer or applicant feels they deserve.

• The customer may 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 [or if the customer provides additional information such as updated financial statements].

• Finally, a certain percent of customers will want to know exactly how their credit limit was determined... and this is often difficult for the credit manager to explain in ways that are understandable to the customer.