How to Set a Dealer Credit Limit: A Step-by-Step Method

A credit limit is the ceiling you set for a current account's open balance. The open balance is the debt that remains after subtracting collections from the total of issued invoices. For example, if you have issued 180,000 ₺ in invoices to Demir Ticaret and collected 110,000 ₺, the open balance is 70,000 ₺. If you have set the credit limit at 150,000 ₺, this dealer can comfortably place new orders, because there is still 80,000 ₺ of room up to the limit.

What the limit protects is your cash flow. If a dealer keeps taking goods without paying, the balance quietly grows, and if one day they can no longer pay, the loss is not limited to a single invoice. The limit stops this growth at a certain point and buys time for the collections team.

A good limit should be neither too tight nor too wide. A limit that is too tight needlessly cuts off the sales of a dealer who pays regularly and pushes them toward your competitor. A limit that is too wide, on the other hand, lets receivables grow to uncollectible levels with dealers whose payment discipline is poor. The goal is to give each current account its own ceiling based on its own behavior, not one fixed figure for the whole portfolio.

The first input is payment history. Look at whether the dealer paid their invoices on their due dates over the last 6 to 12 months. A practical method is to sort each invoice into three buckets: paid on time or early, paid 1 to 15 days late, and paid more than 15 days late or never paid.

You can turn this into a simple score. Let each invoice paid on time earn 100 points, 1 to 15 days late earn 70 points, 15 to 30 days late earn 40 points, and more than 30 days late earn 10 points. The average score of the dealer's recent invoices is a summary of their payment reliability. If Yıldız Bayi paid 8 of the last 10 invoices on time and 2 a few days late, their average is around 94, indicating high reliability.

Tie the score to a category. Above 85 can be considered reliable, between 60 and 85 medium, and below 60 risky. This category will be used as a multiplier in the following steps to push the limit up or down. Look at the trend, not a single late payment; if a dealer pays late three months in a row, that score is more meaningful than a one-off slip.

The second input is the average number of days late. For each paid invoice, take the day difference (payment date minus due date) and find the average. If Demir Ticaret's recent average lateness comes out at 22 days, it means the 30-day-term goods you give this dealer are in practice collected in 52 days. This number shows how many days of gap in your cash flow you are financing when setting the limit.

The third input is the current open balance. When setting a limit, you need to know how much the dealer owes today and the age of that debt. Produce an aging table for the open balance: how much is not yet due, how much is 1 to 30 days overdue, and how much is past 30 days. For a dealer with a balance over 90 days, even if the payment history looks good, require this old debt to be cleared before opening a new limit.

Evaluate these two numbers together. A dealer with low average lateness but whose open balance is constantly sitting at the top of the limit may be paying but working with an insufficient limit; raising the limit would grow sales. Conversely, a dealer whose average lateness rises every month is giving an early warning even if they have not yet exceeded the limit.

The fourth input is the sector. Every sector has its own payment rhythm. In construction and project work, payment terms reaching 90 days are common; in fast-moving consumer goods, collections are much shorter. Knowing the general payment habits of your dealer's sector lets you interpret their lateness correctly. While 40 days of lateness may be considered normal for a construction materials dealer, the same lateness in food distribution sets off alarms.

To make the limit concrete, base it on the dealer's average monthly purchases. A practical starting point is to set the limit as a certain multiple of the dealer's average monthly purchases. For a dealer who pays regularly, the limit can be 1.5 to 2 times the average monthly purchase, because while buying goods in one month and paying for the previous month, they should comfortably carry a two-month balance. If Yıldız Bayi buys an average of 90,000 ₺ a month, setting the limit between 150,000 and 180,000 ₺ in the reliable category is reasonable.

Adjust the multiplier with the category from the previous steps. For a reliable dealer, 2 times the monthly purchase; for a medium dealer, 1.25 times; for a risky dealer, 0.75 times or advance payment only. If the sector term is long, push the multiplier a bit higher; if it is short and cash-based, lower. This way, instead of a single figure, you arrive at a reasoned limit where the four inputs come together.

Now let us bring the four inputs together into a single figure. Take the Demir Ticaret example: average monthly purchase 120,000 ₺, payment score 72 (medium), average lateness 22 days, the entire open balance within 60 days, construction materials sector. With the medium category multiplier of 1.25, the starting point is 150,000 ₺. Because the lateness is below the sector average, you allow a small tolerance and settle on 160,000 ₺. This is a ceiling at which the dealer can carry roughly 1.3 months of purchases.

Do not keep the limit only in a spreadsheet; enter it into the system where the current account runs, so that every order is automatically checked the moment it is placed. On platforms like B2BPro, the credit limit is defined on the current account card, and when a dealer's new order exceeds the limit, the system automatically puts the order on hold or sends it to an authorized person for approval. This way the limit becomes not a note on a shelf but a control that genuinely stops the sales flow.

Define two more things alongside the limit: a warning threshold and an exception rule. The warning threshold should send a notification to the collections team when 80 percent of the limit is reached, so action can be taken before the dealer presses against the limit. The exception rule should determine who can approve a temporary limit increase for large seasonal orders, and on what grounds. During reconciliation periods, these records make it easier to explain why an exception was made.

A credit limit is not a setting you put in place once and forget. As the dealer's behavior changes, the limit should change too. A practical rhythm is to review the entire portfolio once a quarter and to check dealers in the risky category once a month. At each review, you reread the same four inputs and update the category.

Set clear triggers for raising the limit: if the dealer has paid on time for two consecutive quarters, their average lateness has dropped, and their open balance closes out regularly, raise the limit gradually. Raising it in steps of 20 to 30 percent rather than doubling it all at once both rewards the dealer and keeps the risk manageable. If Yıldız Bayi has made clean payments for two quarters, raising their limit from 180,000 ₺ to 220,000 ₺ is a reasonable step.

Have equally clear rules for lowering the limit. If average lateness rises noticeably, if balances over 60 days start to accumulate, or if the dealer gives signals such as a bounced check or a late DBS payment, lower the limit or tie new orders to advance payment. Base these decisions on written thresholds, not personal intuition; this way you avoid arguments with the sales team and treat every dealer by the same yardstick. Keeping a record of limit updates and their reasons on the current account strengthens your hand in any reconciliation and risk discussions that may arise later.