Credit limit
The maximum amount a factor will fund against a particular customer.
Why it matters
If an invoice exceeds the approved credit limit for a customer, the excess portion is typically ineligible for funding. Credit limits are set based on the account debtor financial profile and payment history, and they can be adjusted at any time without advance notice from many factors. A business that grows a customer relationship may find the credit limit cannot keep pace with increasing invoice volume. Sellers with one or two dominant customers are most exposed to credit limit constraints limiting available working capital even when invoice volume is strong.
How it appears in contracts
Credit limits appear in the program approval documentation and are referenced in the Eligible Receivables definition of the factoring agreement. Some agreements include the initial credit limits in a schedule; others leave them to factor discretion. The agreement should specify how credit limit changes are communicated to the seller and what notice is required before a reduction takes effect. Credit limit reductions that occur after invoices have been submitted can create funding shortfalls if invoices already in process suddenly exceed the revised limit.
Related terms
Related reading
Sources
- International Factoring Association - International Factoring Association. Accessed 2026-05-19.
- Secured Finance Network - Secured Finance Network. Accessed 2026-05-19.