Customer Credit Limits and Guarantees for Selling on Terms

Customer Credit Limits and Guarantees for Selling on Terms

You get selling on credit under control before the first shipment with four steps: a customer record checked once, when the customer is added, against two free official sources; a credit limit and payment terms the owner sets for each customer; a check the system runs at every order and every delivery against the open balance, what has not been invoiced yet, and overdue invoices; and an override recorded as an approval with a reason, a name and a time, not a phone call. Then the owner chooses the guarantee that suits each customer: an advance payment, a bank guarantee, or an electronic promissory note on the Nafith platform, a commercial paper that Article 9 of the Enforcement Law lists among executive instruments.

From the quote to the first shipment on credit

In part two price got a single source, quotes got preserved versions, and every discount got an approver everyone knows. We also wrote there that the quote carries the payment terms the owner sets for this customer; this part is about those terms and what stands behind them. Selling on credit is financing you provide from your own cash: you deliver the goods or finish the work today, and you wait for the money until an agreed date. The question before the first shipment is not whether you trust this customer, because, as we saw in part one, most late payment is a missing document or an invoice that reached the wrong person. The question is: how much are we willing to have outstanding with this customer at any one time, on what terms, and what protects us if they pay late?

The customer record: entered once and checked when it is added

Every sales order, invoice and collection will later point to a customer. If one customer is entered under three names, their balance is split across three records, nobody knows what they really owe, and their next order passes the limit check because each record on its own is under the limit. That is why credit starts with the customer record, and a good record carries five basic items:

• The name as it appears in the commercial register, not the project name or the name of the buyer the salesperson talks to. A short name can stay as a search field, but the official name is the one that appears on the contract and the invoice.
• The establishment's unified national number. This is the identifier that never repeats: the system refuses a second record with the same number and searches for similar names before creating one, so it tells the employee the customer already exists instead of leaving it to their memory.
• The VAT number, if the customer is registered for VAT; we return to the invoice itself in part five.
• The address as registered, plus the address of each site or branch you deliver to or serve, if there are several.
• The person authorized to receive and approve invoices: their name, role and contact details, and what the customer's accounts team requires before it accepts an invoice, such as a purchase order number or the site engineer's signature. This one item alone prevents a lot of the delay that starts with an invoice sent to the salesperson rather than to the person who approves it.

Before the customer enters your list, two free official checks are enough, the same two we described from the buyer's side in Quote to Purchase Order: Verified Supplier, Firm Price:

• The VAT registration check at the Zakat, Tax and Customs Authority. A service open to taxpayers and the public, where you search by VAT number, commercial registration number or VAT certificate number and see the establishment's registration status.
• The commercial register lookup at the Ministry of Commerce. An instant, free service where you search by establishment name or unified national number.

The purpose is not to doubt the customer; it is to confirm that the name in the commercial register, the name tied to the VAT number, and the name on the purchase order or contract all match. If they do not, the question gets asked now, before the first shipment, not after the first overdue invoice.

What about a credit check through SIMAH? SIMAH is one of the credit information companies, and the Implementing Regulations of the Credit Information Law, published in the Saudi Central Bank's rulebook, define a consumer as a natural or legal person who has credit transactions, so businesses are included. But the check is not open to any company that wants it: a member under the regulations is an entity that has signed a credit information exchange contract with a credit information company, and Article 40(1) requires the member to obtain the consumer's written consent before making an inquiry. So this route needs a membership, and it needs your customer's written consent before any inquiry.

Credit limit and payment terms: the owner sets them, the system checks them

A credit limit is the most you are willing to have owed by a customer at any one time. Payment terms are how long they have to pay each invoice, and whether part is paid in advance. Both are decisions the owner, or someone the owner delegates, makes for each customer, because they reflect the company's cash, its history with that customer, the size of their orders and the guarantee in hand. There is no limit that is right for every company and no payment period that is right for every sector, and a figure borrowed from another company may stall sales or protect nothing.

The limit and terms are recorded on the customer record, not in a salesperson's memory, together with who approved them, when, and the date of their next review. Then comes the part memory cannot do: the system checks the limit at every order, not only when the account is opened. The check adds up three figures, not one:

• The open balance: invoices issued and not yet paid.
• What has not been invoiced yet: approved sales orders not yet delivered, deliveries the customer has signed for but not yet invoiced, and completed work not yet included in a progress claim.
• The new order itself.

If the total exceeds the limit, or the customer has an invoice past its due date, the order stops at a known point and the salesperson sees why: which invoice is overdue and by how much the order exceeds the limit. The check runs again at delivery, not only at order entry, because a sales order may be approved weeks before shipping, and in those weeks an earlier invoice can fall overdue. The check takes the shape of each sector:

• Factory or distributor. Repeat orders every week, so the check runs at every order and every loading order, and no truck leaves for a customer over their limit without anyone knowing.
• Maintenance company, property operator or hotel. A monthly contract or a corporate account where services build up before the invoice is issued, so the uninvoiced part is what usually goes missing from the picture.
• Contractor. Here the limit is read at contract level, not order level; we come back to it shortly.

Going over the limit: a recorded approval with a reason, not a phone call

There will be a day when you need to deliver above the limit: a large customer in its busy season, a site that stops if the materials do not arrive, or an overdue invoice that is late because its delivery note got lost on your side, not theirs. Control here does not mean the system always says no; it means an exception is a decision with a known owner. The salesperson requests the exception from their screen with a reason, and the request reaches the approver's phone with the figures they need: the limit, the open balance, what is not yet invoiced, what is overdue and for how long, and the guarantee in hand. The approval is recorded with the approver's name, the time and its scope: this order only, or an extra amount until a set date.

It is the same logic as the discount matrix in part two: the owner sets the levels, nobody approves their own exception, authority belongs to the role rather than the person, and every approver has a named delegate for when they are away. Repeated exceptions for the same customer are a signal, not a violation: either their limit no longer fits the size of the relationship and should be reviewed, or their late payment needs a conversation before the next order. Either way, the owner sees it in a report, not in a phone call at the end of the month.

Guarantees: what the owner chooses before selling on terms

A guarantee does not replace the credit limit; it decides how much you are risking when a customer misses their date. Not every customer needs a guarantee, and not every guarantee suits every customer, so this is a decision the owner makes per customer or per customer group. The options include:

• Advance payment. A portion paid before delivery or before work starts, which reduces the amount exposed to late payment. It is recorded as a balance against the sales order or contract that invoices draw down as agreed, not as an amount in the bank account that nobody can tie to an order.
• Bank guarantee. Issued by the customer's bank in your favour for a set amount and period. It is recorded on the customer record with its amount, expiry date and the contract it covers, and the system warns a set time before it expires, a lead time the owner decides, because a guarantee that expired without anyone noticing is no guarantee. Its wording and terms are a question for your bank and your lawyer.
• An electronic promissory note on the Nafith platform. We explain it here because it is the option business owners know least.

Nafith is an electronic platform for creating promissory notes, which the Ministry of Justice's enforcement services guide names as an example of an approved electronic platform, and it serves individuals and establishments registered in Saudi Arabia. The platform says the creditor, which is you, issues the request to create the note, and the debtor then approves it with a confirmation code received through Nafath, the national single sign-on, which counts as the debtor creating the note. A note cannot be edited once it has been approved; the creditor can cancel it and the debtor cannot. The platform also allows multiple notes linked to one request with different due dates, each of which can be enforced on its own, which suits an agreement to pay in instalments.

Why does this matter? Because Article 9 of the Enforcement Law states that compulsory enforcement is only possible with an executive instrument for a right of a fixed amount that is due, and item 4 lists commercial papers among executive instruments; a promissory note is a commercial paper. So a note that is not paid on its date goes straight to enforcement, with no lawsuit first. The Ministry of Justice guide explains that instruments issued through approved platforms such as Nafith are filed on Najiz on the automated track (the virtual court): the applicant enters the note number and its details load automatically. And Article 46 of the law, as amended, states that if the debtor does not pay, or does not disclose assets sufficient to pay, within 5 days of being notified of the enforcement order, the debtor is considered a defaulter, and the enforcement judge immediately orders measures that include a travel ban and notifying a licensed credit information company of the non-payment.

This is what the texts say, not a recommendation to ask every customer for a note. A note carries a fixed amount and a set date, while the open balance moves every week, so the amount of the note, when to request it, and what happens when the balance exceeds it are questions for your lawyer, as is any decision to escalate. What matters in the system is that every guarantee is recorded on the customer record: its type, amount, due or expiry date, what it covers, and where the original or its platform number is kept, so whoever approves the limit sees the guarantee in hand before deciding.

The contractor: advance payment and retention as balances on the contract

A contractor sells on credit differently: they do not deliver a shipment and invoice it; they carry out work for weeks, submit a progress claim that the owner's engineer or consultant approves, and then wait to be paid. Most contracts carry two balances that slip out of normal collection tracking because neither shows up as an overdue invoice:

• Advance payment. The contractor receives it from the project owner at the start of the contract, and it is then deducted from progress claims as the contract specifies. Track it as a balance on the contract: how much was received, how much has been deducted so far, and how much remains. Otherwise it gets deducted twice or not at all, and the difference surfaces as a dispute at the final account.
• Retention. A portion the owner holds back from each progress claim until a condition in the contract is met, such as handover or the end of the defects period. This is your money, but it is not due yet. If it is not tracked as a separate balance with its release condition and expected date, it is either forgotten after handover or shows up in the aging report as overdue when it is not.

For a contractor, the credit limit is read at contract level: work completed but not yet claimed, claims submitted but not approved, claims approved but not paid, and retention not yet released. The sum of these four balances is what the contractor is actually financing for the owner on any given day. How progress claims work and how costs are charged to a project we covered in Cost Control and Payment Applications; what this part adds is seeing the four balances together before you accept extra work or a new contract from the same owner.

The Origami view

When we build the credit workflow for a company, we start from how it sells on credit today: who decides payment terms for a new customer, where limits are recorded if they exist, who approves when a large customer asks for a shipment while an invoice is overdue, and where guarantees and their expiry dates are kept. An exception granted on the phone tells us where the current approval is too slow, before it tells us where control needs tightening.

Then we turn that into a workflow the system enforces: a customer record with an identifier that never repeats, limits and terms the owner adjusts without a programmer, a check at every order and every delivery that adds the open balance to what is not yet invoiced, an exception that reaches the approver's phone and is recorded, a guarantee register that warns before expiry, and advance payment and retention balances on every contract, all connected to your accounting system and e-invoicing. This is part of the custom systems we build as part of our services.

An exercise for this week: review your twenty largest credit customers

Before any system, you need a picture of what actually happens between selling on credit and the limit you believe exists. A finance manager and a sales manager can run this in one or two sessions:

• Pick your twenty largest customers by the balance open on them today.
• For each customer, write down their limit and payment terms as they are written, not as someone remembers them. If you cannot find them in writing, note that.
• Add up what they actually owe: open invoices, deliveries not yet invoiced, approved sales orders not yet delivered, and retention if you are a contractor. Then compare the total with the limit.
• Check their record: is the name as in the commercial register, do they have one record or several, and is the person authorized to receive invoices known?
• List the guarantees you hold for each customer, the expiry date of each, and where the original is.

The number of customers with no written limit, and the number whose actual balance exceeds their limit with no approval anyone can name, are your baseline for this part. Then write on one page: who sets the limit for a new customer, when it is reviewed, who approves going over it, and which guarantee you ask of which customer group. The gap between that page and what you found in the twenty customers is what the system needs to close.

In the next part

Every customer now has a checked record, a limit tested at every order and every delivery, and guarantees everyone can locate and date. The next part moves to the moment a sale becomes something you can invoice: proof of delivery. We explain why the invoice should start from a delivery note the customer signed, or a progress claim their engineer approved, rather than from the sales order, and how that proof is captured on a phone at the door or on site, so any later dispute is answered in a minute, not a week.

Sources

• Enforcement Law, Royal Decree No. M/53 of 1433 AH, Ministry of Justice legal portal (official Arabic text) — Article 9 (executive instruments, including commercial papers in item 4), and Article 46 as amended by Royal Decree No. M/52 (a debtor who neither pays nor discloses sufficient assets within 5 days of notification is considered a defaulter, and the measures the enforcement judge orders).
• Ministry of Justice: guide to enforcement request services on Najiz, second edition (Arabic) — the automated track (virtual court) for instruments issued through approved electronic platforms such as Nafith, and the steps to file enforcement of an electronic promissory note.
• Nafith platform: frequently asked questions (Arabic) — who issues the request to create a promissory note, why it cannot be edited after approval, who can cancel it, multiple notes, and filing a note for enforcement through Najiz.
• Saudi Central Bank: Implementing Regulations of the Credit Information Law — the definitions of consumer and member, and Article 40(1) (the consumer's written consent before an inquiry).
• Zakat, Tax and Customs Authority: VAT registration check service — search by VAT number, commercial registration number or VAT certificate number; free and open to taxpayers and the public.
• Ministry of Commerce: commercial register lookup service — search by establishment name or unified national number; instant and free.