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A credit limit is the maximum amount a supplier is willing to deliver on account to a customer without additional security or prepayment. The limit is set based on an assessment of the buyer’s financial position, payment behavior and risk profile. The goal is to keep the outstanding balance within acceptable limits. The credit limit can be fixed, temporary or dynamic and is reviewed periodically based on new information, such as changed annual figures or payment delays.
Within credit management, the credit limit is a central control tool. It determines whether an order is automatically released or requires manual review. By actively monitoring limits, concentration risk is reduced and exposure remains manageable.
A customer with a credit limit of 50,000 euros can have outstanding invoices up to that amount before new deliveries are blocked.
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