How to set a credit limit you will actually keep
Selling on credit keeps customers coming back. It also ties up your money, and the customers who owe the most are often the ones you find hardest to say no to. A credit limit is a number you decide on a calm day, so you don't have to decide it at the counter. Here are three ways to set one, and how to keep to it.
Way one: start from what they buy
Look at how much the customer usually buys in a week, and how long they usually take to pay. If Mama Sikira buys about ₦45,000 of goods a week and pays after two weeks, then at her busiest she owes you about ₦90,000. That is the credit she needs to keep buying from you as she does now.
Round it up a little, to ₦100,000, so one big week doesn't block her. Anything much above that is not credit she needs. It is money of yours sitting in her shop.
Way two: start from what you can afford to be owed
Add up the most you can have owed to you across all your customers without running short of money to restock. For many shops that is about one week of what you spend buying goods.
Say it is ₦600,000. If ten customers buy on credit, that is ₦60,000 each on average. Give more to the ones who buy more and pay on time, less to the new ones, and check that the total stays under ₦600,000.
Way three: start small and let them earn more
For a new customer, begin with a small limit, such as one week of what they buy. Each time they pay on time for a month, raise it. Each time they pay late, hold it where it is.
This turns the limit into something the customer works towards, instead of something you take away.
Set a number of days too
A limit on its own lets a customer owe ₦20,000 for six months. Add a number of days, such as fourteen, and you know when a debt has gone past what you agreed. An old debt is harder to collect than a new one, whatever its size.
Keeping to it without losing the customer
Tell customers their limit when you set it, not on the day they reach it. Nobody likes a surprise at the counter.
When a sale would take someone over, offer a way through: pay part now and take the goods, or pay down what they owe first. Most customers will take one of those. The ones who won't are usually the ones you most needed the limit for.
It is easier to keep a limit when the book keeps it for you. When the app stops the sale, the rule belongs to the system, not to you, and you are only explaining it.
Maaz Buk keeps a credit limit and a number of days for every customer, stops a sale that would go over, and won't give new credit to someone already overdue.
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