Glossary
Credit Limit
A credit limit is the maximum amount of financing that a financial institution will extend to a buyer or supplier at any given time. It defines the ceiling for outstanding financing, controlling risk for the institution while giving users predictable access to liquidity.
What It Is
In supply chain finance, credit limits apply at multiple levels. A buyer programme has an overall credit limit: the total financing that will be extended across all supplier invoices in that programme. Individual suppliers may also have their own limits, defining the maximum outstanding financing they can access at any point.
Credit limits are not permanent. They are reviewed regularly based on financial performance, payment history, transaction volumes, and changes in the credit environment.
How Credit Limits Are Set
Financial institutions evaluate multiple factors when setting credit limits:
Credit rating / financial statements: overall creditworthiness and debt capacity.
EBITDA and revenue: operational health and repayment capacity.
Payment history on platform: reliability and track record.
Industry and sector risk: volatility and default rates in the sector.
Existing debt obligations: total leverage and headroom.
Transaction volume: programme size and expected utilisation.
Buyer vs. Supplier Credit Limits
Based on: buyer's financials and credit rating; supplier: their own financials or the buyer programme anchor.
Controls: total SCF programme exposure; supplier: individual supplier financing access.
Impact if exceeded: the programme cannot approve more invoices; supplier: cannot request early payment above the limit.
Review frequency: annual or at programme milestones; supplier: quarterly or on request.
Managing Credit Limits
Suppliers approaching their credit limit can request a review with updated financial statements. Buyers whose programme is close to its overall limit can work with the institution to assess whether the limit should be increased based on programme performance and risk assessment.
Transparent credit limit visibility means buyers and suppliers always know how much financing headroom they have; this supports better planning and avoids surprises.
Cash Conversion Cycle (CCC)
Days Payable Outstanding (DPO)