How to credit-check a customer before you take a big order

Nobody loses money on the customer they were suspicious of. The damage comes from the order that felt like a breakthrough — bigger than anything you have done, from a company with a proper website and a purchase order system, arriving at exactly the moment you needed it.

That is the one to check. Not because most customers are bad, but because the size of the order is the size of the exposure, and the excitement of winning it is precisely what stops owners doing twenty minutes of unglamorous homework.

Start with the arithmetic, so you know what you are protecting

Before any of the checking, work out what a bad debt actually costs you. Take an illustrative business running a 30% gross margin. An £18,000 invoice never paid does not cost £18,000 of profit — it costs the £12,600 of materials and labour already spent, plus the margin. To replace that lost gross profit at 30%, you need £60,000 of additional sales.

That is the number to hold in your head. One unpaid invoice at £18,000 needs sixty thousand pounds of extra work to stand still. Suddenly twenty minutes on Companies House and a slightly awkward conversation about a deposit look proportionate.

What you can find for free in twenty minutes

**Companies House.** Free, and more revealing than most owners realise. Look at four things. Are the accounts overdue, and is there a pattern of late filing? Compare the last two balance sheets: is net worth positive and rising, or negative? Check the charges register — a debenture over the assets tells you a lender sits ahead of you in any insolvency. And look at the officers, then search those names: a director with three dissolved companies at the same trading address is telling you something the sales pitch is not.

**The filing history dates.** Small company accounts are filed months after the year end and are heavily abbreviated, so they are a slow signal rather than a live one. What is still useful is the direction of travel and the punctuality. A company that has filed on time for six years and suddenly files late has usually had a difficult year.

**The judgment registers.** County court judgments against businesses are searchable through Registry Trust's TrustOnline service for a small per-search fee. A recent CCJ against a limited company is one of the strongest single signals available, because it means another supplier went to the trouble of suing and did not get paid.

**The VAT number.** HMRC's free 'Check a UK VAT number' service confirms whether a VAT registration number is valid and who it belongs to. A mismatch between the name on the purchase order and the name on the VAT registration deserves an explanation before you commit stock.

**Their own customers and suppliers.** For a trade customer, two calls to other suppliers in the same sector will tell you more about payment behaviour than any report. People answer this question honestly, because a bad payer costs everyone.

A credit check does not tell you whether to take the order. It tells you what terms the order deserves.

What a paid credit report adds

Commercial reports from the main agencies cost from a few pounds a search on pay-as-you-go up to a monthly subscription for regular checking. Three things in them justify the cost on a large order: a suggested credit limit, an aggregated view of how many days beyond terms the company actually pays its suppliers, and the group structure — whether the entity ordering from you is the trading company with the assets or a thinly capitalised subsidiary sharing a brand with something much larger.

That last point catches out a lot of small suppliers. The name on the sign and the name on the purchase order are frequently different legal entities. You are extending credit to whichever one is on the contract, and it is entirely fair to ask for the parent to guarantee the debt if the ordering entity is an empty shell.

Turn what you found into terms

The output of checking is not a yes or a no. It is a set of terms that match the risk.

For a strong company: your standard terms, and a credit limit you set deliberately rather than discovering by accident. Write the limit down. It is the number that stops a good customer quietly becoming an existential one.

For an unknown or marginal one: a deposit before work starts, staged payments through the job, or payment on delivery for the first two or three orders before terms are offered. Nobody reasonable is offended by this — it is normal trade practice, and the customer who reacts badly to a deposit request on a first order has told you something valuable for free.

Two clauses earn their place in your terms of business. Retention of title, which says goods remain yours until paid for in full, is worth having on anything physical and deliverable. And a clear statement of your payment terms and the interest you will charge on late payment, so that the position is contractual rather than improvised. The wider system for getting paid is in how to chase late invoices without losing the client.

Concentration is the risk nobody checks

There is a second exposure that credit reports do not measure: how much of you they are. A perfectly creditworthy customer who becomes 40% of your revenue is a bigger risk to your business than a slightly shaky one at 4%, because their decision to change supplier, renegotiate or simply pay slower reshapes your year.

Track the percentage of revenue and of debtor balance sitting with your largest customer, and set a level at which you stop pursuing more work from them and start pursuing someone else. The client who quietly became 60% of our revenue is the version of this story most owners recognise afterwards rather than in advance.

If it does go bad

You have statutory rights on commercial debts, and knowing them changes how you carry yourself. Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest runs at 8% above the Bank of England base rate, which stood at 3.75% following the Monetary Policy Committee's hold on 30 July 2026 — so 11.75% on a debt falling due now.

You are also entitled to fixed compensation on top: £40 for a debt under £1,000, £70 for £1,000 to £9,999.99, and £100 for debts of £10,000 or more, plus reasonable recovery costs where they exceed that fixed sum. On the illustrative £18,000 invoice, that is £100 plus interest of roughly £58 a week.

You will not always invoke it. Knowing it exists is what lets you say, calmly and factually, that the invoice is now accruing statutory interest — which frequently moves a payment that three polite emails did not.

Make it a rule, not a judgement call

The trap is doing this only when something feels off, because the whole problem is that the dangerous orders rarely feel off. Set a threshold — any new customer, or any single order above a figure that would genuinely hurt if it went unpaid — and check every time, without exception and without needing to justify it internally.

Twenty minutes, on every order over your threshold, forever. It is the cheapest risk control a small business owns, and the only one that reliably pays for itself before you notice it working.

Common questions

What should I check on Companies House before taking a big order?

Four things, and they take about ten minutes. Whether accounts and confirmation statements are filed on time, since a sudden slip after years of punctuality usually signals a difficult year. The last two balance sheets, to see whether net worth is positive and moving in the right direction. The charges register, because a debenture means a lender ranks ahead of you if the company fails. And the directors' names, searched individually — a pattern of dissolved companies at the same address is worth understanding before you extend credit. All of it is free, and none of it requires an accountant to interpret.

Is a paid credit report worth it for a small business?

On any order large enough to hurt, yes. Pay-as-you-go searches cost a few pounds each, which is trivial against the loss you are insuring against. What you are buying beyond the free sources is a suggested credit limit, data on how many days beyond terms the company actually pays its suppliers, and the group structure showing whether the entity ordering is the substantial trading company or a thinly capitalised subsidiary. For businesses taking on new trade customers regularly, a monthly subscription with alerts on changes to the companies you already supply is usually better value than one-off searches.

What interest can I charge on a late commercial invoice?

Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest on business-to-business debts runs at 8% above the Bank of England base rate, which was held at 3.75% on 30 July 2026, giving 11.75%. You can also claim fixed compensation of £40 on debts under £1,000, £70 on debts from £1,000 to £9,999.99, and £100 on debts of £10,000 or more, plus reasonable recovery costs above that sum. These rights apply automatically unless your contract provides a substantial alternative remedy. Many suppliers never charge it, but stating the position factually often prompts payment on its own.

How do I ask a new customer for a deposit without losing the sale?

Present it as your standard process rather than a judgement about them. "For a first order of this size we take 30% up front and the balance on delivery — once we've traded a few times we move customers onto 30-day terms" is a sentence almost nobody argues with, because it is transparent, it is applied to everyone, and it contains a path to better terms. Put it in your quote template so it is visible before anyone has emotionally committed. A customer who refuses a modest deposit on a first order, while insisting the work is urgent, has given you the most useful credit information you will get.