Customer credit risk assessment

How do you set a credit limit for a client or customer? Assuming that you have done your research into the customer there are two options:

  1. Use the credit limit obtained in your credit report, or
  2. Using all the information obtained set your own limit based on your own assessment of perceived risk or "gut feel".

If all the information is positive about the customer then you could take the view that the credit limit should be set on a multiple of the expected monthly sales.

Alternatively, you take the view that the credit limit will be capped at a maximum exposure level which cannot be exceeded without senior management authority.

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