The Equifax Credit limit recommendation is the maximum amount that could be
advanced in any one calendar month by a single supplier. This limit assumes
standard payment terms of 30 days beyond the month of invoice, therefore the
same maximum amount could be advanced in the next calendar month.
This is not the same as doubling the Equifax credit limit! It means that no
more than our figure is recommended in any one calendar month. As payment would
not be required under standard payment terms, until the end of the next month
(e.g. January invoices become due at the end of February), then our limit could
also be advanced during the next month. At certain times therefore, it is perfectly
feasible that twice our credit limit amount could be outstanding.
If extended payment terms are offered, such as 60 days (e.g. January invoices
to be paid at the end of March) then this is at the discretion of the Credit
Manager. It does not follow that the Equifax credit limit could be advanced
for each month until payment is received! The unsecured Credit Manager would
do well to reduce our monthly limit by a third, so that over the 3 months of
supply that 60-day terms would allow, the total maximum exposure outstanding
at any one time would still be twice our limit.
Our credit limits are calculated using a combination of manual analyst review
and our Automated Credit Limit (ACL) knowledge based logic program. ACL is a
ratio-based program that uses the financial data and changes in financial data
that we have extracted from the company's accounts such as turnover, pre-tax
profit, liquidity and reserves. It also takes into account factors such as the
presence of a holding company and any detrimental information registered against
ACL does not take into account other information in the accounts such as post-balance
sheet events. Referral scenarios have been set up to deal with situations where
manual intervention is required to set an appropriate credit limit.
Because ACL is based on the information extracted from the accounts, the calculations
are tailored to the amount of information supplied for each type of company
- small, medium, and full.
A small company will only file a balance sheet so the ACL ratio calculations
will be based on the balance sheet terms including stock, cash and reserves.
A medium company will file a profit and loss account excluding details of turnover
and a balance sheet. ACL will utilise all its ratios with the exception of those
relating to turnover which medium companies are exempt from disclosing.
A full company will file a profit and loss account and balance sheet and ACL
will run all the available ratios in this case.
When calculating the credit limit for a non-limited business, we would take
the following factors into consideration:
Length of time established. This could be taken from our own information or
information supplied by third party directory partners.
Detrimental information registered against the business.
Relative size of the business.
Location of the business.
Type of operations carried out by that business.
All this information is added together and compared against the total population
to assess the level of risk.
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