Maximum Limit Calculation & Turnover % Multiplier
Created by Amy Sara Price, Modified on Wed, 10 Jun at 3:23 PM by Amy Sara Price
Maximum Limit Calculation & Turnover % Multiplier
? 4 min read FAQ Limit Recommendations
In this article
| 1. What is the Maximum Limit? | 2. The Calculation Formula |
| 3. Understanding the Turnover % | 4. How the Turnover % is Determined |
| 5. Risk Appetite: Conservative vs Aggressive | 6. The Default Turnover Percentage |
What is the Maximum Limit?
The Maximum Limit is the highest credit limit Trade Shield's models will recommend for a given applicant. To understand where it comes from, you first need to understand how an applicant's money actually flows — because the max limit is not based on total revenue. It is based on a realistic estimate of what share of their spend could realistically come to you.
Think of it this way: every business has a total annual turnover — their full revenue or income. But not all of that money is available for purchasing from suppliers. And of the portion that is available, it is spread across many different suppliers. The question Trade Shield is trying to answer is simple: "What is my piece of the pie?"
How the maximum capacity is built up — step by step
Start with Total Turnover (100%)
This is the applicant's entire annual revenue or income — the full pie.
Deduct Cost of Sales (~60%)
Approximately 60% of turnover is consumed by the cost of running the business — salaries, rent, utilities, manufacturing costs, and other operational expenses. This portion is unavailable for supplier spend.
Remaining ~40% is Available for Spend
What remains — roughly 40% — is the money available to purchase goods and services from suppliers. But this is shared across all of the applicant's suppliers, not just you.
Your Share = The Maximum Limit
Of that 40%, this applicant buys from many suppliers — direct competitors in your category and entirely different categories (facilities, consumables, services). Your realistic share of their total spend is the maximum capacity available to you, and that is what sets the max limit.
? Real-World Example — A Tyre Company
A tyre retailer with R10m annual turnover has roughly R4m available for spend (after ~60% cost of sales). That R4m is split across:
| Supplier Category | Example Suppliers | Est. Share |
|---|---|---|
| Tyre suppliers (core) | Dunlop, Continental, Bridgestone | ~60% split 3 ways |
| Other automotive | Oils, parts, accessories | ~20% |
| General consumables | Tea, coffee, cleaning, stationery | ~20% |
If you are one of the three tyre suppliers, your realistic share is roughly 20% of 40% — which is approximately R800k, or ~8% of turnover. The turnover % multiplier calibrates this down to a conservative, supportable credit limit rather than the full theoretical maximum.
YOUR PIECE OF THE PIE — VISUALISED
Total Turnover = 100% — two views of the same breakdown
Circular view | Linear view — proportional breakdown Cost of Sales — 60% Other ~24% Cat ~14% You Cost of Sales — ~60% (unavailable) Other supplier categories — ~24% Competitors in same category — ~14% Your maximum capacity — ~2% |
ⓘ The core question: Of everything this applicant earns, what realistic slice can they afford to spend with you? That is the maximum capacity — and that is what the max limit is anchored to.
The Calculation Formula
The maximum limit is calculated using a simple but powerful formula:
Maximum Limit Formula
INPUT
Estimated Turnover
MULTIPLIER
Turnover %
RESULT
Maximum Limit
? Worked Example
| Input | Value |
|---|---|
| Estimated Annual Turnover | R 5,000,000 |
| Turnover Percentage (default) | 1.5% |
| → Maximum Limit | R 75,000 |
ⓘ Note: The estimated turnover is retrieved from Trade Shield's analytical models — it is not manually entered. The platform calculates this figure based on submitted financial data and industry benchmarks.
Understanding the Turnover Percentage
The turnover percentage is the single most important lever in the maximum limit calculation. It is a distilled expression of the answer to one question: "Of this applicant's total turnover, what realistic percentage could they spend with a single supplier like me?"
Once you factor out cost of sales (~60%), split the remaining 40% across multiple supplier categories, and then divide again within your own category among competing suppliers — the realistic slice is typically a small single-digit percentage of total turnover. That is precisely what the turnover % captures.
Think of it as a dial between caution and ambition: a lower percentage reflects a conservative slice of the pie, while a higher percentage assumes a larger share — more credit, but more risk.
Turnover % — Risk Appetite Spectrum
| Turnover % | Risk Profile | Max Limit (on R5m turnover) |
|---|---|---|
| 0.5% | Very Conservative | R 25,000 |
| 1.5% ★ | Default / Balanced | R 75,000 |
| 3.0% | Moderate | R 150,000 |
| 5.0% | Aggressive | R 250,000 |
⚠ Important: A higher turnover % does not mean a better recommendation — it means more credit risk is being accepted. A higher percentage should only be applied where the applicant's risk profile and trading history can genuinely support it.
How the Turnover % is Determined
The turnover percentage is not guesswork — it is derived from a combination of data-driven inputs that are used to calibrate the multiplier to the applicant's specific context:
Industry Norms
Benchmark turnover percentages are drawn from comparable companies within the same industry segment. Each sector carries different payment cycles and risk tolerances.
Company Risk Profile
The applicant's financial position, payment history, and trading relationships are assessed to determine a company-specific adjustment to the baseline percentage.
Historical Behaviour
Past repayment behaviour and purchase patterns from a defined set of comparable companies contribute to refining the multiplier over time — the model learns from real data.
In practice, the turnover percentage aligns the company's operational dynamics and risk profile with a credit limit that is both meaningful and sustainable.
ⓘ Tip: Turnover percentages are typically sampled from a specific set of comparable companies within the relevant industry — the model does not apply a one-size-fits-all figure.
Risk Appetite: Conservative vs Aggressive
The turnover percentage directly reflects the subscriber's (Trade Shield client's) risk appetite. Here is how the two ends of the spectrum differ in practice:
▼ CONSERVATIVE APPROACH
Lower Turnover %
Results in a lower maximum limit. The system is cautious about how much credit exposure is recommended.
Best suited for:
✓ New applicants with limited history
✓ High-risk industries
✓ Uncertain economic environments
✓ Clients with tighter risk policies
▲ AGGRESSIVE APPROACH
Higher Turnover %
Results in a higher maximum limit. The system is prepared to recommend larger credit lines where profiles support it.
Best suited for:
✓ Established applicants with strong history
✓ Low-risk, stable industries
✓ High-volume, repeat buyers
✓ Clients willing to accept more exposure
⚠ Note: The risk appetite setting is a deliberate business decision, not an automated output. It should be reviewed and approved by the appropriate credit manager or risk officer within your organisation before being applied.
The Default Turnover Percentage
When no specific industry or company-level percentage has been configured, Trade Shield applies a standard default:
Default Turnover Percentage
1.5%
Applied when no industry-specific percentage is configured
This default represents a balanced, moderate starting point — conservative enough to protect against over-extension, but sufficient to generate meaningful credit limit recommendations for most applicant profiles.
As Trade Shield's models gather more data on an applicant's behaviour and industry benchmarks are refined, the turnover percentage may be adjusted to better reflect the actual risk landscape.
ⓘ Quick Recap: Maximum Limit = Estimated Turnover × Turnover % | Default Turnover % = 1.5% | Higher % = More credit, more risk | Lower % = Less credit, more caution.
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