Funding Limit
The maximum amount a finance provider will advance against a business's sales ledger at any one time.
A funding limit is the maximum credit exposure a lender is willing to take against a specific debtor or against a business's total sales ledger. In invoice finance, the overall funding limit represents the maximum amount that can be drawn against the facility at any point. Individual debtor limits cap the advance available against any single customer's invoices.
Funding limits are set based on the lender's assessment of debtor creditworthiness, concentration risk, the business's trading history, and the overall quality of the sales ledger. As a business's turnover grows and its debtor quality improves, funding limits can typically be increased on request.
Understanding the funding limit is important when selecting a facility. A limit that is too low relative to your sales ledger will constrain the available cash advance. A limit with no concentration sub-limits may create hidden exposure in periods when a single large customer dominates the ledger.
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