1. Calculate expected receivables from the payment cycle
Start with the customer's expected monthly purchases (or your monthly sales to that customer). For stable sales, approximate the cash outstanding from that customer as:
If the buyer purchases ₹10 lakh per month and normally pays after 45 days, the expected receivable balance is approximately ₹15 lakh. Even if invoices say “30 days,” the actual 45-day collection history determines the funding burden.
2. Include your own working-capital cycle
Receivables are only part of the cash picture. Inventory days and supplier-payment days also matter. A useful broad model is:
For example, with 15 days of inventory, 45 days to collect and 20 days of supplier credit, cash is tied up for roughly 40 days. The cash needed depends on the cost base and whether gross margin is separated from financing requirements. Your treasury team should reconcile this estimate with actual purchases and expenses.
3. Decide how much cash one buyer can absorb
A large expected order does not mean you should approve a matching unsecured credit limit. Compare projected receivables with the amount of working capital you can reasonably allocate to that buyer. Set separate limits for a new customer, an established buyer with a clean history, and a buyer whose payments are frequently overdue.
4. Run a 15-day payment delay scenario
At ₹10 lakh monthly credit sales, a further 15-day delay can tie up roughly ₹5 lakh in additional receivables (₹10 lakh × 15 ÷ 30). If that would exhaust your available cash, consider smaller order releases, staged collections, shorter terms, cash advances or appropriate security.
5. Verify the business and monitor actual collections
Check legal identity and registration status from authorised sources where appropriate, reconcile trade references and invoices, review financial statements with permission, and keep a human reviewer in control of the decision. A correctly formatted GSTIN or PAN does not prove the entity is active, solvent or likely to pay.
6. Review the limit as sales change
Reassess exposure when purchase volumes rise, an invoice is overdue, payment terms change or your cash position tightens. One-time checks are not a substitute for receivables monitoring.