The Credit Limit is the maximum amount of credit a business wishes to extend to a customer. When using a factoring service the factor will work with you to set the credit limit for each customer. They will check the customer’s credit using a variety of sources and methods. The credit limits they set are often more conservative than what you would set because they have access to better information and provide an independent analysis of your customer’s credit worthiness. A factor makes money by buying as many invoices as possible so it is not in their interest to set low credit limits. On the other hand they are experts at setting realistic credit limits because they understand and carry the risk of loss from a bad credit decision.
