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Determination of Credit Limit
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What is a credit limit?
- It represents a confirmation of insurance on individual buyers.
- It is the highest amount of receivables, specified by the insurance, by which the insurer provides the insured with insurance protection for each individual buyer.
How the approval process of a credit limit is carried out:
- Application for a credit limit – the client's determination of the required limit amount and then sending this application to the insurer.
- Search for information on the buyer – KUPEG will search its databases, and databases of external contractors, for information on the buyer's financial strength, payment history, etc.
- Risk analysis – analysis of the buyer's creditworthiness, financial strength and payment history, and of the appropriateness of the limit amount application for the buyer.
- Assessment of the buyer – the limit is determined at a specific date.
- Decision on the credit limit – determination of the limit by the insurer is communicated to the client in the document „Credit Limit Decision“.
- Subsequently, risk monitoring is carried out on a continuous basis during the term of the limit.
How high of a credit limit do I need (example)?
Value of a yearly contract: CZK 14,400,000
1st scenario:
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Payment term: 30 days
Delivery schedule: CZK 300,000 a week -
Limit calculation: 4 x CZK 300,000 within the payment term + CZK 300,000 as a reserve for possible delays in payment
- Credit limit = CZK 1,500,000
2nd scenario:
- Payment term: 60 days
- Delivery schedule (invoicing and regular delivery every 1st of the month – see the table)
Specification of receivables for a credit limit of CZK 5,800,000 (2nd scenario) :
| month |
Receivables as per the delivery schedule (in thousands of CZK) |
Paid receivables (from the relevant month) in thousands of CZK |
Balance of due receivables in thousands of CZK |
Calculation in thousands of CZK |
|---|---|---|---|---|
| January | 2,400 | 0 | 2,400 | |
| February | 3,400 | 0 | 5,800 | 2,400 + 3,400 |
| March | 1,600 | 2,400 (January) | 5,000 | 5,800 + 1,600 - 2,400 |
| April | 0 | 3,400 (February) | 1,600 | 5,000 - 3,400 |
| May | 0 | 1,600 (March) | 0 | 1,600 - 1,600 |
| September | 1,800 | 0 | 1,800 | |
| October | 3,500 | 0 | 5,300 | 1,800 + 3,500 |
| November | 1,700 | 1,800 (September) | 5,200 | 5,300 + 1,700 - 1,800 |
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Limit calculation: a correctly requested amount is the highest aggregate sum of open receivables – i.e. the February figure
- Credit limit: CZK 5,800,000
How to Apply for a Credit Limit?
To send an application for a credit limit, use our online system, send an e-mail to limity@kupeg.cz, or send us a completed form by post or fax. The processing of applications for credit limits, and the risk analysis of our clients‘ business partners, are the responsibilities of the underwriting department.
