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Credit control: A Guide for Start-ups
How do I set credit limits?
It is essential to set realistic credit limits for customers, especially as a start-up. If you don’t limit your risk, an unchecked bad debt could spell the end for your nascent business. You should:
- Set limits for each customer based on what you are prepared to risk. If you have checked a customer’s credit using the references above, you should have a general idea of how much you can reasonably expect them to be good for. As a general rule, your credit limit should reflect how much debt your company can afford to write off if the customer goes bust.
- Stick to the limits – whatever the customer promises. As a start-up, it can be tempting to temporarily suspend your credit limits to accommodate a particularly lucrative order. Avoid this – tell the customer they must obtain the cash to cover the amount over the credit limit. Failing to do this could see your young business crippled by a huge bad debt.