Is there a right time to reassess a customer’s credit limit? Almost two-thirds of industry pros say …

Tight lending limits by the banks and high interest rates will continue putting a financial strain on companies in 2024. Customers will look to extend their credit limits with their suppliers and vendors to stay competitive.

The majority of credit & collections professionals still prefer to review existing customer credit limits on an annual basis, according to a recent poll by the National Association of Credit Management (NACM). Sixty-four percent of creditors like a full year to assess a customer and how it pays before opting to raise its limit.

Twenty-three percent of NACM survey respondents reassess every six months, 10% do so every two years and 4% review credit terms of customers after 18 months. How often these businesses review their credit limits depends on a number of factors:

• Does the customer stretch payments? If so, how often?
• Did a credit professional have to email or call a customer and remind it about a bill?
• Has the customer ever failed to respond promptly to a message?
• What do the customer’s financial statements look like? (It’s never a bad idea to check.)

Lending risks only going up in 2024

Credit pros shared their thoughts on setting credit limits and collecting from customers in the current economic climate on NACM’s Extra Credit podcast. Several noted the importance of being flexible and adjusting credit limits based on new info.

Barry Hickman, senior director of credit at Dal-Tile, stresses that, in the end, every decision is different and depends on the type of customer you’re dealing with. “I might get a call from a rep about a customer that keeps bumping up against its credit limit,” says Hickman. “We look at the entire portfolio. [Maybe] the business is still growing, expanding. We’ll run a few reports, look at its pay history … and we might bump that credit limit a bit to accommodate the customer.”

On the flip side, other credit pros say when it’s time to freeze or cut back a customer’s credit line, don’t wait and don’t apologize. Credit & collections pro Tim Keane analyzes customers’ financial histories before his company’s spring and fall shipping seasons.

If he sees a cash flow problem with a customer, Keane huddles with sales to reassess what can be done. “We may make a change to the terms or change up their order” to preserve the sales relationship but at a lower risk for his company.