Setting a first credit limit for a Canadian business customer

The opening limit is the single most consequential number in a credit file, and it is often set by whoever is standing at the counter. A short written framework removes the guesswork without slowing anyone down.

Start from what you can afford to lose

Work backwards from margin. At a 10% gross margin, a $20,000 write-off needs $200,000 of clean revenue to recover. That figure — not the size of the order the customer wants to place — is the honest starting point for a first limit.

Then adjust for what the file tells you

• Confirmed bank relationship in good standing, several years old: room to move up.
• Consistent trade references at or above the requested limit: room to move up.
• Business registered within the last twelve months, no trading history: start low regardless of the order size.
• Any NSF history, hold, or collections reference: start low and set a short review date.
• PPSA registrations by other secured creditors: not disqualifying, but it changes what is left for you in a recovery.

The review date is half the decision

A limit granted once and never revisited becomes a liability as the account grows. Set a review date with the limit — ninety days for a thin file, twelve months for a strong one — and let the account earn a higher number by paying on it.

Write the reasoning down. A credit file that records why the limit was set survives staff turnover; one that records only the number does not.