How to set credit limits for wholesale customers
A credit limit is the most you are willing to be owed by one buyer. Set it with a method, not a guess, and review it as the buyer earns trust.
In short
- Start from order value and terms: the limit should cover what a buyer orders between being invoiced and paying, roughly one to two months on Net 30.
- Weigh evidence in proportion to the limit: references for small accounts, a credit report and filed accounts for large ones.
- Start new buyers low, raise after three on-time payments, review quarterly and cut at the first sign of slippage.
- Put the limit in writing and enforce it at checkout, or it is only a number in a spreadsheet.
Start from order value and terms
A practical rule of thumb: the limit should cover the orders a buyer places between being invoiced and paying. On Net 30 with monthly ordering, that is roughly one to two months of typical orders. On Net 60 it is more, which is why longer terms carry more risk.
Example: a cafe group orders about $3,000 a month on Net 30. A limit of $4,500 to $6,000 lets them order normally while one invoice is outstanding, and stops them running up three unpaid months.
The same arithmetic tells you something useful about frequency. A buyer who orders weekly on Net 30 will always have four or five invoices open, so their limit needs to be four to five weeks of orders just to trade normally. A buyer who orders once a quarter needs a limit of one order.
Net 30 vs Net 60 at a glance
| Net 30 | Net 60 | |
|---|---|---|
| Typical limit | 1 to 2 months of orders | 2 to 3 months of orders |
| Cash tied up | Lower | Higher |
| Risk if the buyer fails | Lower | Higher |
| Best for | Most small trade buyers | Large, established accounts |
More on the trade-offs in our Net 30 vs Net 60 vs Net 90 guide.
Worked example
Sizing a limit for three buyers
A coffee roaster supplies three kinds of account. A single cafe orders $400 a week; on Net 30 they will have four or five invoices open at any time, so a $2,500 limit lets them trade and caps the loss at about six weeks of beans. A hotel group orders $6,000 a month on Net 60 and wants the limit to match; two months of orders is $12,000, so the roaster asks for a credit report before agreeing and sets a review in three months. A new deli wants Net 30 from the first order; the roaster takes the first order on a card, then opens a $1,200 limit.
| Weekly cafe, Net 30 | $2,500 limit |
|---|---|
| Hotel group, Net 60 | $12,000 limit, credit report, 3-month review |
| New deli, Net 30 | First order upfront, then $1,200 |
Evidence to look at
- Trade references from other suppliers, and how promptly those suppliers say they are paid. Two is enough for a small account.
- A business credit report for larger accounts. In the UK the main providers score limited companies on filed accounts and court judgments; in the US, business credit bureaus do the same from trade data.
- How long the business has traded and whether its filed accounts look healthy. A company that files late, or files very little, is telling you something.
- Your own history: how the buyer has paid you so far. The aging report shows this at a glance.
- Who you are actually lending to. A limited company, a sole trader and a partnership carry different recourse if things go wrong.
How much checking for how much credit
| Limit | Minimum evidence | Review |
|---|---|---|
| Up to $1,000 | Company details and one reference, or first order upfront | After three payments |
| $1,000 to $5,000 | Two trade references | Quarterly |
| $5,000 to $20,000 | References plus a business credit report | Quarterly, and when the buyer's accounts are filed |
| Over $20,000 | Credit report, filed accounts, possibly a personal guarantee or trade credit insurance | Monthly for the first six months |
Good habits
- Start new buyers low and raise the limit after three or four on-time payments.
- Review limits every quarter, and immediately when a buyer starts paying later.
- Use a hard block for accounts that have been late before, and a soft warning for trusted ones.
- Write the limit into your trade terms so the buyer knows it exists.
- Raise limits in steps, not leaps. A buyer who has handled $3,000 well has earned $5,000, not $15,000.
- Cut a limit the same week you notice a problem. Waiting a month to be polite usually costs a month of orders.
A limit on paper, and a limit at checkout
In a spreadsheet
- The limit is a number someone wrote down in March.
- Nobody compares it with the balance before an order ships.
- The buyer does not know it exists until you mention it.
- It is enforced by a phone call after the fact.
Enforced by Terms Due
- Checked against the live balance on every order on terms.
- Visible to the buyer on their pay-now page.
- Over the limit means a block or a flag, your choice per company.
- Changed in one field when you decide to change it.
Limits and terms together
Terms and limits are two dials, and you can turn either. A buyer who wants Net 60 can have it with a limit sized to one month of orders, which keeps your exposure where it would have been on Net 30. A buyer who wants a bigger limit can earn it with a shorter term. Negotiating both at once, with the arithmetic in front of you, almost always lands somewhere both sides can live with.
Questions
Should every wholesale customer have a credit limit?
Yes. Even a generous limit protects you from a buyer whose business suddenly gets into trouble.
How do I enforce a credit limit on Shopify?
Shopify does not enforce credit limits natively. Terms Due credit limits check the balance at checkout.
What if a good buyer needs to go over the limit once?
Raise it for the order, or release that one order, and put the limit back afterwards. A temporary increase with a date on it is a normal part of trade credit.
Should the limit include VAT or sales tax?
Yes. The limit is about the amount the buyer will owe you, which includes tax on the invoice.
Is trade credit insurance worth it?
For a few large accounts that make up most of your exposure, it can be. For many small accounts the premiums usually cost more than the losses a limit and a hold rule would prevent.
Related
Credit limits
Set a credit limit for each Shopify B2B company. Terms Due checks open balance plus the new order before checkout, so no buyer runs up more than you agreed.
Read moreOffering Net 30 on Shopify
A step-by-step guide to offering Net 30 payment terms to wholesale buyers on Shopify, from company setup and trade terms to reminders and collection.
Read moreCredit holds
Put Shopify B2B companies on credit hold automatically when an invoice is overdue or they pass their limit. New orders are blocked at checkout until they pay.
Read moreStop chasing wholesale invoices by hand
Install Terms Due, set a credit limit for each buyer and let the app hold, remind and collect.
Install on Shopify