Did You Approve This Credit Limit & Terms?

Update: Daily Financial Tips Start This Friday 11/21 Through 11/30

Before we dive in, here is your reminder that sarting this Friday, November 21 through November 30, you’ll receive three micro-tips per day covering three important areas going into the new year:

Each message will take one to three minutes to read, but they’ll help you tighten up systems before 2026 hits. This ten-day series is designed to clean up your numbers, improve your cash flow, and help you start the year with clarity.

Now let’s continue the conversation from Monday!!!

How to Set Credit Limits So You Never End Up With Bad Debt Again

Monday we talked about uncollectibles which are invoices that sit too long, slip too far, and eventually get written off. Those write-offs happen for one main reason: the business extended credit without structure or a plan.

Credit limits exist to protect your cash, protect your margins, and protect your time. When you don’t set limits, you are giving customers an open line of credit with zero guardrails. That is how good revenue turns into bad debt and it’s very common when your policies are loose or non-existent.

Here is how to set simple, effective credit limits that prevent write-offs:

1. Start with the customer’s payment history
If they pay early or on time, give them a limit that matches their activity. If they consistently pay late, their limit should stay small until they prove reliability. Past behavior is your best indicator of future performance. You could also ask for references to analyze.

2. Match limits to your risk tolerance
A small business with tight cash flow should never extend large limits. If one customer fails to pay, you feel it immediately. Keep limits aligned with what your business can absorb if something goes wrong. I’ve seen companies resort to factoring because of this and then they lose on every sale they make…not fun.

3. Ask for deposits with larger orders
If a customer wants more work than their credit limit allows, collect a down payment. Serious customers do not mind and will work with you to make things happen. Risky customers disappear or immediately take offense. Remember this.

4. Increase limits only when they earn it
Credit limits are not rewards they are protection. Increase limits slowly and only after months of consistent payment behavior. Monitor closely as well if you extend a limit.

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5. Freeze limits when red flags appear
Late payments, partial pays, or silence on follow-up means tighten the limit immediately. Don’t wait until a balance becomes uncollectible before you actually take action to protect your business.

6. Document everything
Your credit limits should be written, consistent, and transparent. Customers respect structure and your team needs guardrails too.

Credit limits do not slow sales when done right. They protect the business you are building. They keep cash flowing, keep risk controlled, and keep you from ever having to write off another painful invoice.

If you want help creating a simple credit policy and limit structure for 2026, reply to this email. I’ll help you build one that protects your business immediately. I already have a credit policy setup for you…just ask.

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