This tool calculates the outstanding need
with your buyer, based on the volume of business coming and payment terms granted. It compares then the result (theoretical credit limit
) with its financial capabilities to determine the acceptable credit limit
It is based by default on two financial criteria:
- The Tangible Net Worth (TNW, equity minus intangible assets)
- The Turnover
And calculate the acceptable credit limit
by applying the corresponding percentage on these two criteria (the most restrictive result applies).
These criteria can be modified by clicking on Customize scoring 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 ...) in order to secure the commitments.
According to the result of the credit notation
, the acceptable credit limit
will be at most equal to the percentage of the TNW or the turnover defined.
→ Learn more: What is the credit notation?
Example of calculation using the following assumptions:
- The Sales forecast (outstanding need) is 250 000 euros. the calculated 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 result is maximum: 35% x 80 000 = 28 000 euros or
5% x 700 000 = 35 000 euros.
The acceptable credit limit is then 28 000 euros
, as the most restrictive criteria applies.
You can save the result of the calculation to keep the history.
To update the credit limit
, it is necessary to update the customer file or the information in your ERP.
→ Learn more: How to manage credit limit?