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Informing Customers of Their Credit Limits
By Michael C. Dennis, MBA, CBF

In the commercial credit granting community, there is an ongoing debate about whether or not a creditor should routinely inform customers about their established credit limits. On one hand, doing so ensures that the customer understands the limitations imposed by the supplier's credit department. On the other hand, there are risks associated with doing so including potentially damaging the goodwill between the new customer and a potential supplier. The advantages of telling the customer their credit limit include:

  • The opportunity to talk to the customer about the company's payment expectations and the seller's concerns.

  • The opportunity to discuss how the credit limit might be increased in the future - and how soon the credit department will re evaluate its original decision .

  • The opportunity to offer suggestions or advice that may help a marginal customer to become more successful and profitable.

  • Because doing so reduces the chances of encountering a potentially embarrassing situation in which a relatively new customer places an order well in excess of the credit limit and the creditor must hold it.

Some of the disadvantages of sharing this information with your customer include:

  • The customer may self-regulate their purchases so the credit limit is not exceeded, even when the creditor might consider releasing additional orders on open account terms after updating the information contained in the credit file.

  • An applicant may be offended at whatever credit limit is assigned to the account. There is simply no way to know how a customer will respond to the assigned credit limit - no matter how large or small the credit limit might be.

  • Generally, it is a no win situation to try to explain how and why the credit limit was set as it was.

  • The customer may incorrectly believe they are unworthy of a larger credit limit even after they have proven to the satisfaction of the creditor that they would qualify for a larger credit limit - if asked.

If you choose to inform a customer about what their credit limit is, I recommend that you inform the customer that the credit limit is not actually a limit - it is a guideline. Should the customer want additional credit now or in the future, they should be encouraged to contact the credit department or the salesperson to discuss ways to increase the line. The last thing that any creditor company wants is a customer not placing orders because they think they are at or over their credit limit.

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