Credit limit

The maximum open exposure you allow a customer — usually open AR plus undelivered orders — before new sales need approval or are blocked.

Also searched as: customer credit hold, AR credit ceiling, order credit check, exposure limit

Credit limit is a commercial control, not an accounting account. It compares exposure (open invoices, sometimes plus open orders) to a ceiling set by finance. Crossing it should stop silent overtrading.

Good systems show the math at order entry: limit, used, available, and what the new order would do. A limit that exists only in a spreadsheet nobody opens is not a control.

Brand-new micro-customers often need no formal limit. Introduce limits when a single unpaid invoice would hurt cash, or when sales volume tempts people to “just ship.”

Order that would breach the ceiling

Customer credit limit $50,000. Open AR $42,000. Sales wants to confirm a new order for $10,000.

  1. Used = $42,000.
  2. Available before order = $50,000 − $42,000 = $8,000.
  3. Order $10,000 − available $8,000 = $2,000 over limit.

The order needs credit approval (or a smaller ship) — exposure would become $52,000 against a $50,000 ceiling.

Related modules

Related terms

FAQ

Does the limit include open orders?

Policy choice. Many teams include undelivered confirmed orders so warehouse cannot overship while invoices are still unposted.