Key Takeaway: Extending credit is really just extending trust with a number attached. Managing it well means deciding that number deliberately, not by default.
What's on This Page
Setting a Credit Limit
Base initial limits on order size and payment history where available, and increase them gradually as a customer proves reliable. Not upfront based on how large the relationship might eventually become.
Setting Terms
Net 15 and net 30 are the most common small-business terms. Shorter terms protect your cash flow (see Cash Flow Guide); longer terms can be a competitive advantage for larger accounts, but should be earned, not assumed.
Reviewing Credit Risk
- Watch payment history, not just current balance. A customer who always pays 10 days late is a different risk than one who pays on time
- Set a rule for what happens at 60+ days overdue. Typically a credit hold on new orders until the balance is resolved
- Review credit limits periodically, not just when a customer requests an increase
This connects directly to Customer Ledger Explained. The ledger is where this policy actually gets enforced day to day.
For further reading, see the U.S. Small Business Administration's guide to managing a business.
Checklist
- Set an initial credit limit based on order size and history
- Document payment terms in writing before the first order ships
- Review payment history, not just current balance, for risk signals
- Set a clear rule for what happens at 60+ days overdue
- Reassess credit limits periodically, not only on request
- Track credit risk alongside the customer ledger
Common Mistakes
FAQ
How should an initial credit limit be set for a new customer?
Based on order size and any available payment history, then increased gradually as the customer proves reliable over time.
What payment terms are most common for small business credit?
Net 15 and net 30 are the most common, with shorter terms generally protecting the extending business's own cash flow better.
What should trigger a credit hold?
Most businesses set this at 60 days overdue, pausing new orders until the outstanding balance is resolved.
Should credit limits ever be reviewed after they're set?
Yes, periodically, not just when a customer requests an increase. Payment history should inform ongoing limit decisions.
Calculate This For Your Business
Related Guides in the Customer Academy
- Customer Ledger Explained. where credit terms get tracked in practice
- Customer Payment Tracking. monitoring whether credit terms are being honored
- Customer Segmentation Explained. another guide in the Customer Academy