Run a credit check on a new customer

When to run this

The right time to assess a customer's creditworthiness is before the first invoice, not after it goes overdue. Run this play with any client who grants accounts to new customers on trust — a handshake, a logo, and an assumption that a busy-looking business must be a good payer. Some of the worst debts come from exactly that profile.

It is especially worth doing when the first order is large, when the customer is pushing for credit terms immediately, or when something feels rushed. A request to skip the paperwork and start supplying on account is itself a small signal worth respecting.

The play (steps)

Build a tiered check so small accounts are not buried in process while large exposures get real scrutiny:

1. Confirm who you are dealing with. Verify the exact legal entity, its ABN or ACN, and that the trading name maps to it. Many disputes start with credit extended to the wrong entity.
2. Check standing. Confirm the entity is active and not under external administration.
3. Run a commercial credit check. For meaningful exposures, obtain a credit report to see registered defaults, court actions and adverse data.
4. Take trade references. Ask for and actually call two existing suppliers who extend the customer credit.
5. Scale the rigour. A small opening limit may warrant only identity and entity checks; a large one warrants the full set.
6. Record the decision. Note what was checked and why credit was granted, so the file makes sense later.

What good looks like

Good checking is proportionate and routine. The business knows exactly which legal entity it has agreed to supply, has seen evidence of how that entity pays, and has set an opening limit that reflects what it learned. Nothing dramatic happens — and that is the point. A quiet, consistent check at the front door prevents the loud, expensive problem at the back.

A credit check is a snapshot, not a guarantee. Used well, it shifts the odds; it does not remove risk, and a clean report still pairs with sensible limits and good terms.

What to say to the client

Reframe checking as normal commercial practice, not suspicion: “Extending credit is lending money — you are just lending it in goods instead of cash. No bank lends without a look first, and a five-minute check at the start is far cheaper than chasing the money for six months at the end.”

If a check uncovers a customer who already has unpaid debts elsewhere, and the client has older debts of their own, you can suggest a free debt appraisal to take stock of what is already outstanding.

Common mistakes

The classic mistake is checking the trading name but granting credit to a different legal entity, leaving the business chasing a shell. The second is treating a credit report as pass/fail rather than as one input alongside trade references and a sensible limit. The third is doing the check once, at onboarding, and never again — a customer who was sound two years ago may not be today, which is why the credit application and periodic review plays matter.