Credit limit management is the operational process that turns a lender's risk appetite into enforceable ceilings on exposure. A credit limit is proposed for each customer, counterparty or group, approved at the level required by the credit approval matrix, and loaded into the systems that book loans, trades or sales. Limits are often split into sub-limits by product, tenor, currency or legal entity, and sit beneath wider caps for sectors and countries.
Once in place, limits are checked before each new transaction and tracked through credit exposure monitoring. An excess must be approved in advance or, if it arises passively from market moves, reported and cured within a set time. Limits are reviewed at least yearly and sooner if the customer's creditworthiness changes; unused or expired limits are cancelled. In trade credit, the same discipline governs how much a supplier ships on open account before payment, alongside its credit terms.