---
title: "Setting a credit limit before you are forced to say no"
source: https://www.lskhata.com/blog/setting-a-credit-limit
category: "Running a shop"
language: en
published: 2026-08-15
reading_time: 7 min
---

# Setting a credit limit before you are forced to say no

_A limit agreed when everyone is comfortable is a rule. A limit invented at the moment of refusal is an insult. The difference is timing._

## In short
- Set the limit when you open someone's khata, not when you want to refuse them.
- A limit is a number and a period. "₹5,000" without "within 30 days" is only half a rule.
- Say it out loud once, at the start. A limit the customer never heard of is not a limit, it is a surprise.
- Review limits for your regulars twice a year. A limit set three years ago is describing a different customer.

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.

_[Figure: A limit and a period are the two halves of the same rule. Without the period, the limit only tells you how big the balance may get, not how long it may sit there.]_

### 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.

**Raise a limit deliberately, as a reward.** When a customer has cleared their balance on time twice, raising their limit is a small, free thing that people notice. It also does something useful for you: it turns the limit into a live number that both of you know is being watched, rather than a forgotten setting.

### 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.

**The limit that has never once been enforced.** If nobody has ever been told they are at their limit, you do not have a credit policy — you have a number in a field. That is worth knowing, because it means your actual exposure is whatever your customers decide it is.

## Common questions

**How do I decide a credit limit for a customer?**

A common starting point is what they normally spend in the period you expect to be paid over — roughly a month's ordinary purchases for someone who settles monthly. The point is not precision. It is having a number that existed before the awkward conversation, so refusing is a rule being applied rather than a judgement being made about that person.

**Can I set credit limits per customer in Khata?**

Yes. Each party can carry a credit limit and a credit period, so the terms sit on the customer record rather than in your memory. Setting them is what makes "you are past your limit" a fact both of you can look at.

**What do I do when a good customer goes over their limit?**

Usually you serve them and then have the conversation, because refusing a reliable regular over a small overrun costs more than it saves. What matters is that the conversation happens at all. A limit crossed silently and repeatedly is not a limit.

**Should I tell customers their credit limit?**

Yes, once, at the start, in an ordinary tone. A limit the customer has never heard of feels like a rule invented on the spot to get rid of them. The same number, mentioned when you opened their khata, is just how your shop works.