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Credit Limit

There are different measures for Limited and Non-Limited Companies. For a Limited Company, the Credit Limit is a measure of its ability to settle potential credit transactions. It should be regarded as a yardstick for the possible level of acceptable credit or the maximum amount one is happy to be owed by the company at any one time, it does not consider a time period.

The following three values are used in the calculation of credit limits:

  • CASH FLOW - calculated as the Pre-Tax Profit of the company plus Depreciation charged against that Profit
  • WORKING CAPITAL - calculated as the difference between the Total Current Assets and Total Current Liabilities
  • NET WORTH - Calculated as Total Assets minus Total Liabilities where the former is also adjusted to eliminate any Intangible Assets

The average of these three components is then taken as a guide for the credit capacity of the company. The final figure calculated is dependent on the Credit Score and also on industry specific criteria.

Some companies may not have a credit limit attached, this is because they have scored below 15 or and therefore all elements from the balance sheet and cash flow will be negative.

Absence of Credit Scores/Limit

Not all businesses will be scored or have credit limits, this can be due to the following reasons:

No credit score and no credit limit:

  • Insufficient information on business
  • Business has more than 4 outstanding CCJs in the last 6 months and less than 25 employees
  • The value of CCJs is greater than £2,000 in the last 24 months
  • There have been more than 3 CCJs in the last 12 months
  • There have been more than 10 CCJs in total

No credit limit

  • Not enough information to estimate financial strength
  • Business engaged in certain financial activities which makes an estimate of financial strength inappropriate

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