As a retailer, managing credit limits for individual customers is vital for reducing the risks of non-payment. You can easily control these limits with the correct settings in your point-of-sale (POS) software.
Why credit limits matter
Credit limits help prevent customers from overspending and building up large debts that may not be paid back. It puts limits on just how much money you risk on any customer. For businesses, unpaid debts can seriously impact cash flow and profits. Setting appropriate limits based on customers' payment history and general financial circumstances helps mitigate these risks.
Having control over limits within the POS also allows businesses to adjust amounts as needed dynamically. For example, a limit may be lowered if a regular customer has recently been slow to pay. Or it could be raised for long-term customers with an excellent repayment track record as you feel you can trust them more.
How your POS software can help
Our point-of-sale system gives you extensive controls on handling and managing these credit limits.
To find it in your system, click on the main menu to customer > customer maintenance.
Now call up a customer, and click Other Details. (See green arrow below)
Now you can see trading terms and a question about what to do if a credit limit is exceeded to either stop the account or warn you if it's exceeded.
Now, what figures do you use? Well, I am not aware of any no precise method of allocating these credit limits. A simple policy that works well in retail is
1) Allocate customers into one of the three categories of credit risk (good, average, other) based on past paying history and gut feeling. Some, like the government, can be very difficult to determine here as they are almost always but not always secure, but they generally take a long time to pay.
2) Divide them up into sizable and small. A potentially large customer may need a decent credit limit to trade with you. Consider reducing the trading days for the credit limit.
3) Divide them up into low and high-profit customers, e.g. a customer who buys agency items generally because the margins are so small, you may not be prepared to give a credit limit at all.
This gives you twelve groups to make theoretical dollar limits.
Now go through and set up your limits considering their trading history.
Generally, unless you have a particularly pressing reason to change it, I suggest you hold to your limits.
Comprehensive reporting
We have a report showing customers who are currently at or over their limits which helps you prioritise which accounts require review and attention.
Putting limits on work
One newsagent shared her experience with using credit limits with me recently: "Being able to set spending caps for each customer in my POS has saved me so many headaches. I got tired of always having to chase some people for payments. Now, the system warns me before limits are exceeded and also reminds slow payers to clear their balances. It's given me much better control over cash flow and credit risks."
Overall, you will find the number of unpaid invoices will go way down once implemented, as most people will pay on time if you don’t let their balance get too high or drag out too long.
Periodic Review
A well-organized organisation should do a periodic review of all clients generally every year. I am not aware of any company that waits two or more years longer to review their clients.
Another tip I can give you.
It is better not to share your credit limit amount with your clients. Once they know this limit, many clients will hold off on payments until the credit limit is reached. Another problem is there is no way in advance to know how a client will respond to your assigned credit limit. Some get offended if they feel it's too low.
In summary
With our POS system, retail businesses can benefit from managing credit limits granted to customers. This protects both you and your customers from unwanted disputes. Take the time to ensure your system has robust credit limit controls to streamline operations and boost your bottom line.
