This tool calculates the outstanding need which is based on the volume of business coming with your buyer and payment terms granted. It compares then the result (theoretical credit limit
) with its financial capabilities to determine the acceptable credit limit
The tool offers by default 2 financial criteria: the Tangible Net Worth (TNW, equity minus intangible assets) and turnover.
According to the result of the credit notation
, the acceptable credit limit
will have a maximum amount equal to xx% de of the TNW and the turnover.
Example of calculation using the following assumptions:
- Theorical credit limit (credit limit need) is 50 000 euros
- The TNW of the customer is 80 000 euros
- Its yearly turnover is 700 000 euros
- Credit notation result is B
The acceptable credit limit
is calculated as following: 35% x 80 000 = 28 000 euros or
5% x 700 000 = 35 000 euros. The most restrictive criterion applies.
The acceptable credit limit is then 28 000 euros
You can customize these criteria. The objective is to define a credit limit
that is consistent with the financial capabilities of the buyer. If the acceptable credit limit
is insufficient in relation to future sales, it is necessary to negotiate shorter payment terms and / or obtain third-party payment guarantees (bank, insurance ...)
You can save the result of the calculation and keep the history. It is then necessary to update the credit limit
in the customer sheet.