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Once a financial institution opens a Credit line or line of credit to its customer, the maximum amount of funds that can be used by the customer is restricted to the credit limit specified in the facility agreement. Usually credit limits are created by the financing banks or lenders after a careful study of the FS in the case of entities or based on a lending policy in the case of an individual.
Credit limit is the limit which is determined by every company for its customer to sell the product or service to that limit. Once it reaches that limit the supply of product or service are kept hold unless the due is paid.
This limit is usually specified with transaction history of that business unit.
CREDIT LIMITS OFFERS BY KEEPING MANY THING IN MIND ONE OF THE IMPORTANT ASPECT TO UNDERSTAND THE COMPANY PROFILE, EXTRACTING THEIR LAST 6 MONTHS FINANCIAL STATEMENT OF ACCOUNT WITH ITS PAYMENT HISTORY, ALSO THE CASH FLOW LIQUIDITY ETC.
When goods & services supplied on credit, it is needed to create a specific credit limit for a particular customer. This credit limit may different for different types of customers.
Credit Limit is created based on past sales history & experience, financial soundness, familiarity overall creditworthiness of the customers.
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Credit limit is approved by the customer from the competent authority in light of the many considerations go on the field in the clarified floating in clouds and limits customer deposit bonus
