How do I set a credit limit for a new customer?

For a new customer with no history with you, start conservatively — typically one month's expected spend or less. Obtain and verify trade references, check ASIC and ABN registrations, and review after the first 3-6 months of trading.

Should I get a personal guarantee for large credit limits?

A personal guarantee from directors is advisable for large credit limits, particularly where the debtor is a company with limited assets. It allows you to pursue the individual directors if the company cannot pay.

What happens if a customer exceeds their credit limit?

Put a stop on new orders and contact the customer immediately. Do not extend additional credit until the overdue balance is cleared. If the customer disputes the limit or refuses to pay, refer to Merion.

How often should I review credit limits?

At a minimum, annually. Review immediately if: the customer starts paying late, they request a significant limit increase, there are changes in their ownership or directors, or you hear negative trade reports about them.

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Credit Limit Calculator

Setting credit limits is one of the most important — and most neglected — credit management decisions. This calculator uses four key risk factors to suggest an appropriate credit limit for a new or existing B2B customer.

Customer profile

Customer's estimated annual revenue with you (AUD)

Your expected annual sales revenue from this customer.

Payment history

Time as customer

Trade references verified?

How the credit limit is calculated

The starting point is one month's average spend (annual revenue ÷ 12). That base is then adjusted by three multipliers: payment history, relationship tenure, and trade reference quality. Strong payment history and long-standing relationships increase the suggested limit; default history or unverified references reduce it significantly.

The risk categories are based on the combined multiplier product:

Low risk — multiplier above 1.0
Medium risk — multiplier 0.5–1.0
High risk — multiplier 0.2–0.5
Very High risk — multiplier below 0.2 (consider cash on delivery)

This is a guide only — not financial or legal advice. Credit limits should be set following a full credit assessment, including a signed credit application, trade references, and a credit bureau check. Review limits regularly and whenever a customer's circumstances change.

How credit limits are set in practice

The standard rule of thumb is to start at approximately one month's expected spend, then adjust up or down based on risk factors. A customer on 30-day terms who has traded with you reliably for two years and always pays within terms might warrant a higher limit. A new customer, or one with patchy payment history, should start conservatively and earn increases.

Best practice is to review limits at least annually and immediately whenever a customer's circumstances change — particularly if they start paying late, request a significant limit increase, or you hear adverse reports from other suppliers.

What is a credit application for?

A credit application gathers the information you need to set a limit: ABN, trading history, trade references, directors' details, and consent to a credit check. It also establishes your credit terms as part of a binding contract. Without a signed credit application, enforcing your terms — including a personal guarantee — is much harder. Download our Commercial Credit Application Template to get started.

When to reduce or suspend a credit limit

Warning signs that a credit limit should be reduced or suspended include: a customer who previously paid within terms beginning to pay late; bounced or failed direct debits; a change of trading name or business structure; director changes visible on ASIC; or unsolicited requests for a significant limit increase without a clear commercial reason. Act early — it is far easier to tighten a limit before a large balance accrues than to recover it afterwards.

This is a guide only — not financial advice. Credit decisions involve risk that no calculator can fully quantify. Set limits based on your own assessment, including a signed credit application, verified trade references, and where appropriate, a formal credit bureau report.

When credit goes wrong

Merion recovers commercial debts — commission-only.

When a customer exceeds their limit and stops paying, refer to Merion. No recovery, no fee.

Refer a debt Credit application template

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