A3. All about the credit limit: the amount of the credit limit

3. The amount of the credit limit
A credit limit is the amount per customer for which you are insured and is equal to the maximum outstanding balance; the total of the unpaid invoices (due and not due) plus the amount of the orders in portfolio. If your policy provides cover for 'pre credit risk', this will have an impact on the credit limit calculation.

3.1. How do you calculate the amount of the credit limit?
This can be done in two ways:

• Based on expected annual turnover (the proportionality rule)
  (Expected annual turnover x average allowed credit period) / 365 days
  The above formula is rather theoretical. In practice, it is important to consider actual payment behaviour rather than the allowed credit period.
• Based on the actual outstanding balance.
  The credit limit you need depends on the debtor's existing or expected maximum outstanding balance. It is best to provide a safety margin. In the example below, a credit limit of €15 000 is sufficient.

Tips:

• On application, round up the amount to the higher thousand.
• Do not request an excessive amount. This may require additional research and may not be compatible with the debtor's financial standing.

The total amount of credit limit decisions (review, credit and Start Cover limits together) is capped. This total amount is calculated based on your insurable turnover and can be found in the policy. This parameter, which is also built into Atrium, ensures that your requests are in proportion to the actual limit requirement.

If your debtor has seasonal activity, you apply for cover based on the highest expected outstanding balance. You can also work with temporary increases to accommodate this.

Each credit limit Atradius issues is in the currency of the policy and applies to one particular debtor, identified by its unique identification number. Any deviation from this is clearly stated on the limit appendix.

Exceeding the credit limit
We speak of exceeding the credit limit if the outstanding balance for a particular debtor in your accounts exceeds the amount of the credit limit. In that case, it is best to request an increase in the existing credit limit via Atrium.