How Much Credit Should You Give an Overseas Buyer? (2026)

The number you are actually setting

A buyer asks for 60-day terms on a 12-lakh order. The easy answer is yes — the order is profitable, the buyer seems solid, and the competitor down the road will say yes anyway. The harder question is what happens if the next three orders also ship before the first one is paid.

That is what a credit limit is for. It is not the order value, and it is not the annual turnover you hope to do with the buyer. It is the maximum amount you are willing to have outstanding with that buyer at any single moment — invoices not yet due, invoices already past due, and goods in transit that will become invoices.

Four ceilings — and you take the lowest

Most exporters size a limit from one input: what the buyer asks for, or what the last order was. A defensible limit comes from four independent ceilings, each answering a different question. The limit is the smallest of them, because each one can bind on its own.

The four rarely agree, and that is the point. A generous insurer limit on a buyer who represents half your receivables is still a bad limit. A comfortable concentration number on a buyer whose margin cannot fund 120 days is still a bad limit.

Ceiling one: what you could afford to lose

Start with the uncomfortable question, because it is the only one that cannot be negotiated later. If this buyer stopped paying tomorrow, what is the largest receivable your business could write off without missing payroll, defaulting on a loan, or stopping production?

Express that as a policy, not a feeling. A common structure for an SME is a per-buyer cap at a fixed share of net worth, tested against one month of fixed costs. Ten percent of net worth is a reasonable starting point for a first policy — but it is a choice you make and document, not a rule anyone can hand you ⚠️.

• Net worth sets the outer bound — 10% of 1.5 crore is 15 lakh, and that is the most one buyer should ever be able to cost you.
• Fixed costs set the survival test — if monthly fixed costs are 8 lakh, a 15-lakh loss is under two months of overhead, which is survivable.
• Cash buffer sets the operational test — if the loss would force you to delay a salary run or a supplier payment, the cap is too high regardless of the ratio.
• Existing borrowings matter — a loss that breaches a covenant is more expensive than the receivable itself.

Write the number down before you meet the buyer. A limit chosen after the order is on the table tends to be chosen to win the order.

Ceiling two: what the margin can pay for

Credit is not free to give. Every day a receivable is outstanding, you are funding the buyer. The cost is your working-capital rate applied to the invoice value for the tenor, plus insurance, plus the FX exposure if you are invoiced in a foreign currency.

Read the last column. At 90 days, roughly a quarter of a 12% gross margin is going to fund the buyer — before any bad debt, any FX movement, any delay. That does not make 90-day terms wrong; it makes them something you price. If the margin cannot carry the tenor, the limit is not the problem, the price is.

Two practical adjustments follow. Price the term into the quotation rather than absorbing it, and treat an extension from 60 to 90 days as a price change, not a favour. Both are covered in more detail in the 90-day credit guide linked below.

Ceiling three: what the insurer will cover

If you insure the receivable, the approved buyer limit becomes a hard ceiling. Cover responds up to that limit; shipments beyond it are effectively uninsured, however good the buyer looks. That single fact changes the order of operations: apply for the limit before the proforma invoice, not after the shipment.

Where no specific limit has been approved, some policies fall back to standing limits. ECGC's Standard Cover (Risk) Policy, for instance, sets standing limits under Clause 21(b) — quoted in a 2026 Karnataka High Court judgment as ₹40 lakh for D/P and CAD terms and ₹20 lakh for D/A and open delivery, each capped at two claims, with an upper reference of ₹80 lakh and a ₹30 lakh sub-limit for open-account transactions. Those figures are policy-specific and indicative — check your own schedule before relying on them ⚠️.

• A limit is not a guarantee of cover — it is the maximum the insurer will respond to, subject to policy conditions and exclusions.
• Limit utilisation is checked per shipment, so overlapping shipments can breach a limit without any single order being large.
• Declare shipments as the policy requires; an undeclared shipment can void cover even inside the limit.
• If cover is declined for a buyer, that is information about the buyer, not an administrative inconvenience.

Ceiling four: how much of your book one buyer can be

Concentration is the ceiling exporters discover last. Ten buyers at 10% each is a diversified book; one buyer at 60% is a business with a single point of failure, however good that buyer's credit is. The risk is not the buyer's rating — it is the correlation between your largest customer and your ability to keep operating.

Set two concentration limits and hold both: no single buyer above a share of total receivables, and no single country above a share of the book. A 25% per-buyer cap is a workable starting point for a small exporter; adjust it to how correlated your other buyers are ⚠️.

Buyer A can grow, but not without either shrinking another exposure or growing the book. That is the constraint working as intended — it forces new business to be additive rather than concentrated.

A worked limit, start to finish

Here is how the four ceilings combine on a real-shaped example. The numbers are illustrative, and the policy percentages are choices rather than standards — but the arithmetic is the part worth copying.

The limit is 15 lakh, and the binding constraint is loss tolerance, matched by concentration. Insurance is not the constraint at all — a common outcome, and a reminder that a generous insurer limit does not make a buyer safe for your balance sheet.

Now test it against shipment rhythm. If the buyer orders 7.5 lakh a month on 60 days, steady-state exposure is about 15 lakh — exactly at the limit. A single 10-lakh order tips it over. Either the order size comes down, the tenor shortens, or the limit is raised deliberately with the loss tolerance re-tested.

When the buyer asks for more

Every good buyer eventually asks for a higher limit or a longer tenor. The answer is not yes or no — it is a ladder with evidence attached to each rung.

1. Ask what changed — a bigger order, a new contract, a seasonal peak, or a cash-flow problem they have not mentioned. The reason determines the response.
2. Request the evidence — latest filed accounts, bank reference, or a confirmed LC covering the incremental value.
3. Move in steps — 25–50% on a clean payment cycle, not a doubling on a promise.
4. Trade limit for tenor, or tenor for limit — rarely both at once. A higher limit on 30 days is often safer than the same limit on 90.
5. Put the increase in writing — amount, tenor, review date, and the conditions that would step it back down.

The step-back matters as much as the step-up. A limit that only ever rises is not a credit policy; it is a ratchet. State in advance what would reduce it: two late payments in a year, a country downgrade, or utilisation above 80% for two consecutive months.

Review cadence and the triggers that override it

An annual review is the floor, not the system. Most credit losses are visible in the data weeks before they become losses — the invoice that went 20 days late, the order that doubled, the country that got downgraded. Build triggers so the review happens when the risk changes, not when the calendar says so.

Keep the policy to one page: the four ceilings, the approval authority, the triggers, and the review date. A policy nobody can state from memory is a policy that gets overridden by the next big order.

The limit is the strategy

Exporters tend to treat credit limits as a lender's paperwork — something ECGC or the bank asks for. In practice the limit is the clearest statement a business makes about how much it is willing to risk for a given order. Set it from the four ceilings, review it on triggers, and move it in steps. The buyer who objects to that discipline is usually the one it was designed for.

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