Almost every shopkeeper who has been trading for a few years has one customer whose balance is too big. Not a stranger who vanished — a regular, someone they like, whose account grew a little at a time until it became a number nobody wants to mention.
That situation is not created by a bad decision. It is created by the absence of a decision, repeated forty times. Each individual sale was reasonable. Nobody ever chose to extend forty thousand rupees of credit to that person; it simply accumulated because there was no point at which anything said stop.
The timing is the whole trick
A credit limit set at the moment you want to refuse someone is heard as a personal judgement, because that is exactly what it is. The same number, mentioned when you first opened their khata, is heard as how the shop works. Nothing about the number changed. The only difference is that one existed before the moment it was needed.
You are not deciding whether to trust this person. You are deciding, in advance, how much of your money you are comfortable having out of the shop.
A limit is two numbers, not one
"Five thousand rupees" describes how large a balance may become. It says nothing about how long it may stay there, and that is usually the part that hurts. A customer sitting at four thousand for eight months is inside their limit and is still money you are not using.
- The amount: how much you are comfortable being owed by this person at once.
- The period: how long a balance may stand before you expect it cleared.
- Both go on the customer record, so neither depends on you remembering.
- Both get said out loud, once, when the khata is opened.
Rough starting points
| Kind of customer | A reasonable starting limit | Period |
|---|---|---|
| Daily household regular | About a week's normal spend | Cleared weekly or fortnightly |
| Monthly settler, long-standing | About a month's normal spend | 30 days |
| A small business buying from you | What they can pay from one month's trading | 30 days, reviewed quarterly |
| Somebody new | Small, deliberately. Raise it once they have cleared twice. | Short |
These are starting points, not rules. The right number depends on your margins, your cash position and how much of it you can afford to have sitting outside the shop. A shop working on thin margins can afford far less credit than the same-sized shop working on fat ones, and the arithmetic there is worth doing once rather than assuming.
Reviewing them
Limits go stale in both directions. The customer whose business has grown is being held back by a number set when they were new. The customer whose circumstances have worsened is carrying a limit that no longer reflects what they can clear. Twice a year, sort your customers by outstanding balance, look at the top twenty, and ask whether each limit still describes the person it is attached to.