Set a Customer Credit Limit Before Offering Invoice Terms

Decide what your own cash can carry

A large order can look attractive while leaving you short of money to fulfil it. Start with your cash-flow forecast: when will you pay suppliers and staff, and how long could you manage if this customer pays late?

Suppose a fictional forecast reaches a minimum of $10,000 before taking on this extra exposure, and the owner chooses to preserve $4,000. That leaves $6,000 of temporary cash-gap capacity. It does not automatically justify a $6,000 customer limit. A limit measures customer charges; cash pressure depends on the costs and dates behind those charges, plus your other commitments.

Business.gov.au recommends checks and limits before offering credit. Use that principle to make a decision from your own numbers, rather than copying another supplier's 30-day account limit.

Check the entity and the evidence

Ask for the legal entity, Australian Business Number (ABN), purchase contact, accounts-payable contact and expected order pattern. Match the entity on the order to the party accepting the terms. A familiar trading name doesn't explain who is responsible for paying.

Search the relevant public registers and keep the date and result. ASIC's business-checking guidance explains the available checks and their limits. Registration alone is not evidence that a customer will pay.

For an existing customer, use actual invoice dates, due dates and receipt dates. Note genuine disputes and your own billing errors separately; otherwise a 'slow payer' label may describe a problem you caused. Keep the source and date beside each observation.

Personal credit checks need a separate assessment. This worksheet uses your own trading records and public business-register information; it does not authorise access to a sole trader's, director's or guarantor's consumer credit report. Before using a reporting service or requesting trade references, have the proposed checks and information handling reviewed. OAIC's report-access guidance explains the starting restrictions.

Choose an initial arrangement you can explain

Compare these options against the evidence you have:

• Prepayment: useful when identity or payment evidence is incomplete. Agree the arrangement before accepting the order and confirm cleared payment before relying on it.
• A modest initial limit: lets you observe a small account. Record the maximum exposure and who may approve an exception.
• Reviewed terms: consider a change after relevant payment history and your own cash capacity have been checked again.

A new customer who needs several orders before their first payment may reach the limit sooner than expected. Model that overlap. Don't set a limit equal to one typical order while ignoring the next three orders arriving before payment is due.

Count exposure before it becomes an invoice

Australia Post's own account definition includes unpaid invoices and charges incurred but not yet billed. Its credit-limit explanation is a useful example of why invoice totals alone can understate exposure. The original worksheet below also reserves room for accepted orders that haven't yet been fulfilled.

Assumptions: AUD customer-charge amounts on a consistent gross basis. Each job appears in one row only. Committed orders are reserved exposure, not an assertion that the customer already owes an invoice debt.

Item	Amount	Evidence or decision
Approved customer limit	$6,000	Owner approval CL-12; review date recorded
Outstanding invoices	$2,700	Unpaid sales ledger, after matched receipts and credits
Completed work not yet invoiced	$800	Job J-82; excluded from open-order figure below
Accepted, unfulfilled orders	$1,500	Orders O-31 and O-32; excludes invoiced/completed items
Total exposure	$5,000	$2,700 + $800 + $1,500
Remaining headroom	$1,000	$6,000 limit less $5,000 exposure
Proposed additional order	$1,600	Would lift exposure to $6,600: $600 over the limit
Recorded decision	Review before acceptance	No automatic limit increase; seek agreed prepayment or a revised order if suitable

Original ASBG fictional example. Use the assumptions above when replacing these figures with your own.

When J-82 becomes an $800 invoice, move it from completed-unbilled work to invoices. Don't add it to both. When $2,700 genuinely clears and is allocated, total exposure falls to $2,300, assuming nothing else changes. The customer then has $3,700 headroom under the existing decision.

A promise to pay doesn't reduce exposure. Update the calculation when the money arrives and has been allocated. The late-payment stress test shows how to model the delay separately.

Put the decision beside the terms

Your decision record should show the customer entity, evidence checked, approved amount, what counts towards it, payment terms, approver, review date and exception process. Give sales and accounts staff access to the same current decision.

Use this internal note as a starting point:

Account [reference]: approve [limit] from [date], based on [evidence] and cash forecast [version]. Include unpaid invoices, completed unbilled work and accepted unfulfilled orders without duplication. Review on [date] or earlier if [specific trigger]. Exceptions require [authorised person] to record the reason before another commitment is accepted.

Put proposed customer-facing credit conditions through a separate contract review, especially changes, suspension rights or guarantees. The ACCC's contract guidance is a useful starting point for that discussion. This internal limit sheet records an approval decision; it does not supply contract terms or change an accepted order.

Review after a missed commitment, entity change, unusual order increase or a change in your cash forecast. If money is already overdue, move that task to the unpaid-invoice guide. Keep the prevention and collection decisions connected through cash flow and getting paid.

Next, confirm the account details before the next job starts.

Key takeaways

• Base the decision on both customer evidence and your capacity to fund the gap.
• Count unpaid and unbilled commitments once, on a consistent basis.
• Give new orders an approval check before they push exposure over the limit.
• Review privacy and contractual requirements before implementing the credit process.

Where to get help

Use ASIC's checking guide for public-register checks and OAIC's report-access guidance for the personal-information boundary. A commercial solicitor can review credit terms and permitted checks; your accountant can help model cash capacity. Business.gov.au's payment-terms guidance provides the general starting point.