How much trade credit should I offer a customer?

Offer only the trade credit your business can deliberately carry, using the customer's actual payment evidence and your own funding requirements. There is no universal dollar limit that makes a new customer safe. Start by defining what the limit includes and who can commit the business to more work.

Trade credit means allowing the customer to pay after the supplied goods or service. A limit on unpaid invoices alone can miss accepted work that has not been invoiced yet.

Define the exposure before choosing a limit

Consider a fictional packaging printer. On August 5, 2027, a relatively new business customer owes $2,400 for its completed first order, due August 15. Nothing is overdue yet. The printer has an internal $5,000 exposure limit for that customer, defined as unpaid invoices plus the unpaid price of accepted, unbilled orders, less deposits actually received and allocated to those orders. It counts each amount once.

That $5,000 is an invented internal commitment limit, not an industry benchmark, an insurance promise or a legal cap on what the customer can owe. Only the owner can authorize a different limit in this example.

The customer proposes a second order priced at $3,600, payable September 1 after delivery. It remains unaccepted. Accepting it entirely on credit would create $6,000 exposure: the old $2,400 plus the new $3,600. Calling the second invoice “not issued yet” would not remove the new delivery promise.

Test the delivery funding separately

The new order needs $2,400 of complete payments by August 10, including materials, every worker and owner hour, and all other costs attributable to fulfilling it. Confirmed capacity fits its promised date without disturbing existing work. Financing and income tax are outside this limited order record.

The printer has $2,500 available specifically for the new order after every other commitment. The older $2,400 receipt is already assigned to the old operation and is not counted as new-order funding. Without a deposit, the printer could fund the $2,400 production payment and have only $100 of that assigned cash left until the new order pays.

A proposed $1,000 deposit on August 5 would bring the new order's unpaid price down to $2,600. Combined exposure would then be exactly $5,000. Assigned cash would rise from $2,500 to $3,500 before the August 10 payment, leaving $1,100 afterward. These figures assume the deposit has actually cleared before acceptance and production; a request or promise to pay it is not enough.

The deposit helps both the stated exposure test and the delivery funding. It also carries a service obligation. Receiving it is not permission to spend money needed to finish the customer's order. The advance-payment guide follows that responsibility.

Get evidence for the terms you are offering

Confirm the purchasing entity, who can authorize the order, the accepted price, the invoice requirements and the payment date. Ask for relevant payment information through appropriate channels and assess what it establishes. A good conversation or a familiar trading name does not prove that this particular entity will pay on time.

The existing first invoice supplies no completed payment history yet. Its current status is “due August 15,” not “reliable payer.” Any external report also needs its date, covered entity and limits understood. The concentration resource examines a different exposure: what happens when one relationship carries too much of the company.

Accounting records do not make the decision automatically. OpenStax's receivables discussion distinguishes estimates of noncollection from balances owed. An estimate is not a payment guarantee or a reason to ignore a missing approval.

Release the next order on an explicit basis

The owner can consider the deposit arrangement, wait until the first balance is collected, investigate a smaller fresh offer or decline the new order. A smaller offer would need its own cost and capacity check; prices and costs cannot simply be scaled down without evidence. None of these choices cancels the first order's obligations.

If the deposit arrangement is accepted, record the cleared deposit, approved order and resulting $5,000 exposure before releasing production. As collection arrives, allocate it to the correct invoice. Moving a sum from “unbilled order” to “invoice” changes its stage, not its total exposure.

Review the limit when the facts change, including payment performance and commitments being added. A larger sales target is not evidence that the company can fund a larger customer balance.