How to set credit limits for customers (and stop bad debt)

Unlimited udhaar is how small businesses quietly go broke. A credit limit per customer caps your risk while still rewarding good, regular buyers.

Step 1: Decide a limit per customer

Base it on how long you have known them, their payment history and their typical order size. New customers get a small limit; proven payers earn more.

Step 2: Communicate it kindly

Frame it as a standard business policy, not distrust. 'We keep running accounts up to ₹X and settle before the next order.' Clear expectations prevent friction later.

Step 3: Enforce it at the point of sale

When a customer's balance reaches the limit, ask them to clear part of it before the next credit sale. A khata that shows the live balance makes this easy and unemotional.

Step 4: Review limits regularly

Raise limits for customers who always pay on time; tighten them for chronic late payers. Reward good behaviour with more credit.

Step 5: Combine with reminders

A limit plus a fixed reminder schedule keeps balances small and current. Together they cut bad debt more than either alone.

Frequently asked questions