Understanding Credit Limits in a Multi-currency Company

Overview

This article provides information on how Everest interprets configured credit limits for companies set up with multiple currencies e.g. a company with a base currency setup as USD having customers set up in Argentinian Pesos or Great Britain Pounds (GBP).

Information

Below are some important considerations to note when setting up credit limits in a multi-currency company:

• You must define the exchange rates for all foreign currencies that you transact in
• You can define as many exchange rates as you want on the same day. Exchange rates can be changed for individual transactions.
• If you are creating a transaction for receiving foreign currency payments from your customer, you need to use the rate at which your bank will credit your account for the deposit. But, if you are issuing a foreign currency check to a vendor, you will use the rate at which your bank debits your account for the withdrawal.
• It is mandatory to enter at least one rate: the buy or sell rate.
• You may set up rates for different types of documents and General Journal.

Refer to Setting up Exchange Rates for more information on how to define exchange rates. 

When the document is in foreign currency, amounts are translated into the base currency using the exchange rate for the document. The translation formula applied depends on the Quote Type that is set in the Currency profile (path: File > Setup > Accounting > Multicurrency > Currency > Options > Edit > In New Window).

• If the Quote type is Foreign to Base, the translation formula is:
  Foreign Currency Amount x (Exchange Rate/Quote Amount)
• If the Quote type is Base to Foreign, the translation formula is:
  Foreign Currency Amount x (Quote Amount/Exchange Rate)

Example

• If your base currency is the US Dollar, and the document currency is Great Britain Pounds (GBP), and the rate is expressed as 1 GBP = 1.42064; then 1000 GBP is translated using the formula for Quote Type Foreign to Base as 1000 x (1.42064/1) = 1420.64
• If the rate is expressed as 1 USD = 0.703973 GBP, then 1000 GBP is translated using the formula for Quote Type Base to Foreign as 1000 x (1/0.703973) = 1420.51

Credit limit information includes the following:

1. Whether the customer is put on credit hold and the reason for the same
2. The credit limit for the customer in the customer's currency
3. When the customer must be put on ‘automatic’ credit hold

You can set the default credit limit for new customers in the Credit Limit field of the Customers tab (path: File > Setup > Accounting > Location/Sub-Location). This credit limit amount is displayed in this field by default.

You can modify the credit limit for specific customers anytime from the Customer profile. This field cannot have a negative value and the last decimal is rounded off. The number of decimals displayed in this field depends on the number of decimals specified in your Currency profile settings:
(path: File > Setup > Accounting > Multicurrency > Currency > Options > Edit > In New Window > Decimals to display field)

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