Offering payment terms can help you win new customers, build stronger relationships and make larger sales feel easier for buyers to commit to. But it also means you are lending your customer money in practice, even if you do not describe it that way.
Before you allow a new customer to pay 30, 60 or 90 days after receiving your goods or services, you need to know whether they are likely to pay on time. UK businesses are already under pressure from late payments, with government research showing that over 1.5 million businesses are affected each year and an estimated £26 billion is owed in late payments at any given time.
That is why credit checking should not be treated as admin. It is a basic part of protecting your cash flow. If your team is already stretched, using outsourced credit control services can also help you keep payment checks, reminders and follow-ups consistent from the start.
A good credit check will not guarantee payment, but it can help you spot risks before they become expensive. It can also help you set sensible credit limits, agree suitable payment terms and avoid giving too much trust to a customer you barely know.
Why credit checking matters before offering payment terms
When you offer payment terms, you give the customer time to pay after the work is complete, the goods have been delivered or the invoice has been issued. That may be normal in business-to-business trading, but it still carries risk.
The problem is that one unpaid invoice can quickly create a chain reaction. You may still need to pay staff, VAT, suppliers, rent, software costs, fuel, insurance and finance agreements. If a customer owes you £5,000, £15,000 or £50,000 and does not pay on time, the pressure falls on your business first.
Late payment is not just an inconvenience. UK government research published in 2025 estimated that late payments cost the UK economy almost £11 billion per year, with around 14,000 businesses closing each year because of late payment.
Credit checking helps you reduce that risk before the first invoice is raised.
Check the customer is who they say they are
Start with basic identity checks. This sounds obvious, but many payment problems begin because the supplier did not confirm exactly who they were trading with.
You should check:
- The registered company name
- The company registration number
- The trading name, if different
- The registered office address
- The trading address
- The names of directors or key contacts
- The VAT number, where relevant
- The correct billing email and accounts contact
For limited companies, you can cross-check details through Companies House. Make sure the company name on the purchase order, contract and invoice matches the legal entity you are actually dealing with. If the customer uses a group company, subsidiary or trading style, confirm which legal entity is responsible for payment.
This matters because if the invoice later becomes overdue, you need to know who owes the money. A vague trading name or incorrect company details can make recovery slower and more complicated.
Review the company’s payment behaviour
A customer may look professional, but that does not mean they pay suppliers on time. You should look for signs of how they behave once they receive an invoice.
Useful checks include:
- Commercial credit reports
- Payment performance data
- County Court Judgments
- Insolvency notices
- Director history
- Previous company failures linked to directors
- Trade references from other suppliers
A company with a low credit score, repeated late payment history or recent legal action may still become a customer, but you should not treat them the same as a long-established business with a clean payment record.
You may decide to ask for upfront payment, a deposit, staged payments or a lower credit limit at first.
Look at financial strength, not just sales potential
It is easy to get excited when a new customer wants a large order. But a big order is only valuable if it is paid for.
Before offering generous terms, look at whether the business appears financially stable. A credit report may show turnover bands, net worth, credit limits, payment trends and financial risk indicators. For larger customers, accounts filed at Companies House may also give you a sense of their balance sheet position.
You do not need to become a financial analyst. You simply need to ask practical questions:
- Can this customer afford the level of credit they are asking for?
- Does the order size look normal for their business?
- Are they asking for longer terms than usual?
- Are they avoiding questions about payment processes?
- Are there signs of cash flow pressure?
If a new customer asks for £25,000 worth of goods on 60-day terms, but their credit profile suggests a much lower safe limit, you should pause before approving the account.
Set a sensible credit limit
A credit limit gives you control. It is the maximum amount the customer can owe you before further work, goods or services are paused.
For example, you might allow a new customer a £2,000 limit for the first 3 months. If they pay on time, you can increase the limit gradually. If they pay late, you can reduce the limit, move them to pro forma invoices or ask for payment before further work continues.
Your credit limit should reflect:
- The customer’s credit score
- The value of the order
- Your own cash flow position
- Your profit margin
- The cost of replacing the customer if things go wrong
- The risk level in your sector
A £10,000 unpaid invoice may be manageable for one business but highly damaging for another. The right credit limit depends on your exposure, not just the customer’s expectations.
Agree payment terms in writing
Do not rely on verbal agreements. Before you provide goods or services, make sure your payment terms are written clearly and accepted by the customer.
Your terms should cover:
- Payment deadline
- Invoice date and due date
- Accepted payment methods
- Late payment interest
- Recovery costs
- Dispute process
- When services or deliveries may be paused
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can usually claim statutory interest and fixed recovery costs on qualifying late commercial debts. Taurus Collections also highlights that businesses may be able to recover interest and collection costs they are legally entitled to, rather than only chasing the original invoice value.
Clear terms make it harder for a customer to say they did not understand when payment was due.
Watch for warning signs during onboarding
Credit checking should not stop once the report looks acceptable. Pay attention to how the customer behaves during onboarding.
Be cautious if they:
- Push for unusually long payment terms
- Refuse to complete a credit application
- Use different company names across documents
- Give vague accounts department details
- Place a large first order with urgency
- Ask you to send invoices to a personal email address
- Delay signing your terms but want work to begin immediately
These signs do not always mean the customer will fail to pay, but they should make you ask more questions.
Use deposits and staged payments for higher-risk customers
If you still want to work with a customer but the credit check raises concerns, you can adjust your terms rather than refusing the work altogether.
Options include:
- Payment upfront
- A 50% deposit before work begins
- Staged payments at agreed milestones
- Shorter 7 or 14-day terms
- Lower credit limits
- Personal guarantees, where appropriate and properly advised
This can help you protect your business while still giving the customer a chance to build trust.
Keep reviewing credit risk after the first order
A customer who pays on time once may not always pay on time. Circumstances change. Their own customers may start paying late, they may lose a major contract, or they may take on too much debt.
Review customer accounts regularly, especially if:
- Order values increase quickly
- Invoices start being paid later
- The customer asks for extended terms
- They stop responding to accounts emails
- They raise repeated small disputes near the due date
Good credit control is not just about chasing overdue invoices. It is about spotting patterns early and acting before the balance becomes too large.
Have a clear process when payment becomes overdue
Even with good checks, some customers will still pay late. Your process should be clear from day 1.
A simple overdue process might include:
- A polite reminder before the due date
- A same-day follow-up when payment becomes overdue
- A firmer reminder after 7 days
- A phone call to confirm the reason for non-payment
- A final demand letter if the debt remains unpaid
- Referral to a professional debt recovery agency if the customer still does not respond
The sooner you act, the better. Long delays can make recovery harder, especially if the debtor’s financial position worsens.
Final thoughts
Credit checking new customers is not about being negative or suspicious. It is about running your business properly. If you are offering payment terms, you need to know who you are dealing with, how much credit you can safely offer and what steps you will take if payment does not arrive on time.
A simple check before approving a new account can save you weeks of chasing, protect your cash flow and reduce the risk of unpaid invoices turning into serious debt.
If you need help checking customers, managing payment terms or recovering overdue invoices, Taurus Collections can support you with professional credit control and debt recovery services. Get in touch today to protect your cash flow before late payment becomes a bigger problem.
