FAF3
Syllabus D. Recording Transactions And Events D8. Receivables and payables

D8d. The purpose of credit limits 3 / 7

Syllabus D8d)

Understand the purpose of credit limits.

Credit Limit

Another tool in credit control is the credit limit. A customer will be given a credit limit, which cannot be exceeded. This is a threshold that a company will allow its customers to owe at any one time without having to go back and review their credit file.  Credit limit is the maximum amount that a firm is willing to risk in an account.