Understanding Your D&B® Credit Limit Recommendations

Your vendors are running businesses, too. When you ask them to extend trade credit, borrowing is a business decision for you and lending is a business decision for them. Understanding what your vendors see when they check your business credit file can help you better plan and negotiate when it comes to terms and conditions.

Your Dun & Bradstreet business credit report includes information about your company’s size, financial health and payment history, proprietary scores and ratings, and two credit limit recommendations: a conservative and aggressive limit. We’ve created the infographic below to help business owners understand these credit limit recommendations in more detail.

 

What Is the Conservative Credit Limit Recommendation?

Cautious vendors may choose to make lending decisions based upon a conservative credit limit recommendation. The conservative credit limit recommendation is:

  • The smaller of the two numbers
  • Used by vendors that want to limit risk
  • The minimum suggested credit amount to be extended

What Is the Aggressive Credit Limit Recommendation?

There are times when a vendor may be willing to take on increased risk. The aggressive credit limit recommendation is:

  • The larger of the two numbers
  • Used by vendors that are comfortable with a higher level of risk
  • The maximum suggested credit amount to be extended

How Do Dun & Bradstreet’s Credit Analysts Determine These Limits?

Our business credit analysts arrive at their recommendations by considering industry metrics, the size of your business, and the likelihood that your company will experience financial stress within a year.

Which Credit Limit Can Business Owners Expect?

Some vendors prefer an aggressive credit limit, and others will go the conservative route. It’s not always about you. The decision to extend credit may also tie into the vendor’s overall business goals.

Here are some reasons that a vendor may go with an aggressive credit limit:

  • The company is looking to expand
  • The vendor is in a strong financial position
  • They sell a product that can be repossessed in the event of a default
  • They sell a product that is extremely profitable
  • The vendor has a lot of competition

Conversely, the less profitable the product, less stable the company, and less serious the competition, the more likely vendors will prefer a conservative credit limit. Their stance may relate more to the health of their company than the health of yours.

Tips to Help Increase Your Business’s Credit Limit

Your business may receive lending terms at the higher end of the range by addressing the vendor’s needs. Consider the following questions:

  1. Can you make a trade-off between price and terms that increases the profitability of the sale for the vendor?
  2. Can you work with the vendor on a payment schedule that eases their concerns?
  3. Has something about your financial position improved that is not reflected on your business credit report?

The more you know about how terms are extended to your business, the better you can manage the terms you offer clients. This can help you fulfill your company’s strategic plan.

Want to know more about how your Dun & Bradstreet scores and ratings can help affect credit limit recommendations? Learn about impacting your business credit file by calling a Dun & Bradstreet Credit Advisor at 1-800-701-7168. Visit our Basics of Business Credit page for additional information about business credibility.

Photo Credit: lelia_milaya, Twenty20