Pre-approved Limit or Proposal: Better for Credit?

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When we talk about setting limits for customers on credit, there is a huge paradigm among retailers that needs to be broken.

Many people believe that the correct model is to give the customer a single limit, regardless of when they are going to buy, what they are going to buy and how they decide to use that limit.

“After all, the customer has to know how much he can spend in my store. That’s how it works.”

In fact, this is practically a tradition among stores that sell on credit and most store owners understand it this way.

What I intend to show in this article is that not everyone who buys on credit should have this pre-approved limit.

And your store can earn more from certain types of customers if you start setting a limit per proposal, that is, per sale.

Come with me and I'll explain!

What is pre-approved limit?
A pre-approved limit is when the store generates a credit condition for the customer that can be used over time as they wish.

For example, you grant R$500 in credit to a customer and they decide whether to spend it on a single purchase or on several purchases of smaller amounts.

Payment terms are also at the discretion of the buyer, who overseas chinese in australia data can pay in 3, 5 or 10 installments, as they see fit.

I.e:

How the limit is used is not an issue. The store will simply check whether the purchase is within the pre-approved limit.

What is limit per proposal
Also known as “proposal analysis”, this form of credit granting works by defining a specific limit at the time of sale.

Basically, the store identifies the customer's behavior profile and analyzes the credit each time they pay for a new purchase in installments.

Payment conditions are also limited by the store, which must have a system capable of assessing the risk of each proposal.

When should you use each limit?
Why do we have to have these two approaches when dealing with credit limits?

Because consumers have different consumption profiles, each with their own particularities.

You can work comfortably with a pre-approved credit limit for part of your portfolio, but not for another part. In these cases, you need to analyze the customer on a purchase-by-purchase basis.

But how do you know exactly who will be entitled to a pre-approved limit and who will have a limit per proposal?

Identifying the customer profile
I completely agree that pre-approved limit provides a great customer experience.

But your store needs to know how to identify customers who can actually be treated this way.

Of course, you don't want your customer to leave saying that they previously had R$1,000 in credit in your store and that now they only know how much they can buy when they go to the checkout.

You can rest assured that this R$1,000 customer will continue to have their pre-approved limit.

Look at it this way:

You will still be able to deliver this experience to somewhere around 60% to 70% of customers.

The other 30% or 40% would likely have their purchases denied if you calculated a pre-approved limit.

The limit per proposal is an opportunity you are giving so that people can buy from your store without increasing default.

Many of them, once they build a better history at the store, may even become customers with a pre-approved limit.

But there are those who, throughout their entire active life in the store, will always be customers with a proposal limit.