Reading a companys accounts before you agree payment terms

You’ve just won a pitch for a significant project with a new, larger client. It’s a fantastic win, but there’s a catch in their contract: 60-day payment terms. For a small business, extending that much credit is a huge risk. You're effectively giving them an interest-free loan for two months, tying up your cash flow and praying they pay on time. Before you sign on the dotted line, you need to ask a critical question: can this company actually afford to pay you?

Fortunately, in the UK, you can perform your own quick financial health check on any limited company for free. Every year, they must file accounts with Companies House, and this public information is a goldmine for assessing risk. This guide will walk you through exactly what to look for in a company's accounts, even if you don't have an accounting degree. We’ll skip the jargon and focus on the practical red flags that tell you whether you should agree to those payment terms, negotiate for better ones, or walk away.

Why Bother Checking? The Risk of Extending Credit

Offering payment terms like 'net 30' or 'net 60' is standard practice in many B2B industries, but it's crucial to understand what you're doing. You are extending credit. You are delivering work or goods and trusting that your client will pay you later. This makes you an unsecured creditor. If that client’s business fails before they pay you, your invoice will fall to the back of a very long queue, behind the tax man, secured lenders, and employees. The chances of recovering your money are often slim to none.

For a small business, a single large unpaid invoice can be catastrophic. It can halt your ability to pay your own staff, suppliers, and overheads. While large companies often have the leverage to demand generous payment terms, it doesn't mean you have to accept them blindly. A five-minute check of their financial standing is a fundamental piece of due diligence that can save you from months of stress and financial difficulty. Think of it not as being mistrustful, but as making a sensible business decision based on evidence.

Where to Find a UK Company's Accounts (for Free)

In the UK, all limited companies and LLPs are legally required to file their accounts with Companies House. This is the official register of companies, and its online service provides free public access to this information.

Here’s how to find the documents you need:

1. Go to the GOV.UK "Find and update company information" service. This is the public search portal for Companies House.
2. Search for the company. You can use their full, registered company name or, even better, their company registration number if you have it. The number is unique and avoids any confusion with similarly named businesses.
3. Select the correct company from the search results. You'll land on their main overview page.
4. Click the "Filing history" tab. This shows a chronological list of all documents the company has filed, from incorporation documents to director appointments.
5. Look for the "Accounts". You are looking for the most recent set of "Full accounts" or "Annual accounts". They will be available as a downloadable PDF.

Don't be alarmed if the latest accounts are a few months old. Companies have up to nine months after their financial year-end to file, so the information is always looking in the rearview mirror. However, if the accounts are listed as "overdue," that is a significant red flag in itself.

Your 5-Minute Financial Health Checklist

Once you've downloaded the PDF, it can look intimidating—dozens of pages of numbers and dense text. But you don't need to read it all. You're looking for a few key indicators. Focus your attention on the Balance Sheet (sometimes called the Statement of Financial Position) and the Profit and Loss Account (or Income Statement).

1. The Balance Sheet: Is the Company Solvent?

The Balance Sheet is a snapshot of the company's financial health on a single day—the last day of its financial year. It shows what the company owns (Assets) and what it owes (Liabilities).

What to look for:

• Current Assets vs. Current Liabilities: This is the most important check.

  • Current Assets are things the company owns that can be turned into cash within a year. This includes cash in the bank, stock (inventory), and—crucially—debtors (also called trade receivables), which is money owed to them by their customers.
  • Current Liabilities are debts the company has to pay within a year. This includes short-term loans, taxes, and—most importantly for you—creditors (or trade payables), which is money they owe to their suppliers.

• The Quick Test: Are Current Assets greater than Current Liabilities? If they are, the company has a "positive working capital" and appears to be able to cover its short-term debts. If Current Liabilities are higher than Current Assets, it's a major warning sign. This suggests they might not have enough liquid resources to pay their bills (including yours) as they fall due. This is often expressed as the 'Current Ratio' (Current Assets / Current Liabilities). A ratio below 1 is a cause for concern.

• Net Assets (The Bottom Line): At the very bottom of the Balance Sheet, you'll see a figure for "Net Assets" or "Total Equity". This is calculated as Total Assets minus Total Liabilities. If this number is negative (shown in brackets), the company is technically insolvent. Its liabilities outweigh its assets. This is a huge red flag, and you should not offer credit to a company in this position without serious consideration.

2. The Cash Position: Do They Have Any Money?

A company can be profitable on paper but have no cash in the bank. Revenue is not cash. Profit is not cash. Cash is cash.

What to look for:

• In the Current Assets section of the Balance Sheet, find the line item for "Cash at bank and in hand".
• How much is there? Is it a healthy sum, or is it a tiny amount relative to the size of the business? A company with millions in turnover but only a few thousand pounds in the bank is operating on a knife's edge. An overdraft (a negative cash position) shows they are reliant on the bank to manage their day-to-day cash flow. Low cash reserves mean a single late payment from one of their big customers could directly impact their ability to pay you.

3. Their Payment Habits: The Debtor vs. Creditor Clue

The relationship between what a company is owed and what it owes can tell you a lot about its business model and how it treats suppliers.

What to look for:

• Find the "Trade Debtors" figure (under Current Assets). This is the total value of invoices the company has issued to its customers that are still unpaid.

• Find the "Trade Creditors" figure (under Current Liabilities). This is the total value of invoices the company has received from its suppliers that it has not yet paid.

• The Comparison: If the Trade Creditors figure is consistently much larger than the Trade Debtors figure, it can be a sign that the company's business model relies on paying its suppliers very slowly to fund its operations. They are using their suppliers' money (your money!) as a free line of credit.

• The Advanced Check (Creditor Days): If you're feeling brave, you can calculate their average payment time. You'll need the "Cost of Sales" figure from the Profit & Loss Account. The formula is: (Trade Creditors / Cost of Sales) x 365 = Creditor Days This gives you a rough estimate of the average number of days the company takes to pay its suppliers. If the result is 85, 90, or 100+ days, you know that their 60-day payment term is more of a suggestion than a rule. You can fully expect to be chasing your invoice.

4. The Profit & Loss Account: Are They Making Money?

While cash is king, profitability is a strong indicator of long-term health. The Profit & Loss (P&L) Account shows the company's revenues and expenses over the entire financial year.

What to look for:

• Skim past the revenue and cost figures and go straight to the bottom line: "Profit/(Loss) for the financial year".
• Is it a profit or a loss (a loss will be in brackets)? Most accounts will show figures for the current year and the previous year side-by-side. Is there a consistent trend? A history of steady profits is a great sign. A single year of loss might be explainable (e.g., a large investment or a tough market), but a pattern of consecutive losses is a serious red flag, suggesting an unsustainable business.

5. The Notes to the Accounts: Look for "Going Concern"

The notes section contains important context. While much of it is technical, there is one thing you should always scan for.

What to look for:

• Use your PDF reader's search function (Ctrl+F or Cmd+F) to look for the term "going concern".
• This is an accounting principle that assumes the company will continue to operate for the foreseeable future (at least the next 12 months). If the company's directors or their auditors have any doubts about this, they must mention it in the notes. Any text that highlights a "material uncertainty related to going concern" is the financial equivalent of a flashing red light and a siren. It means the experts who prepared the accounts have significant doubts about the company's survival.

A Note on Micro-Entities and Abridged Accounts

You might find that the company you're looking up has filed "Abridged Accounts" or "Micro-entity Accounts". Under UK law, small and micro-sized companies are allowed to file much less public information. This makes your job harder.

• Micro-entity accounts are the most basic, often containing just the Balance Sheet with very little detail and no Profit & Loss account.
• Abridged accounts (for small companies) also have less detail than full accounts, and the company can choose not to file its P&L account.

The less information available, the harder it is to assess the risk. If you are dealing with a company that files minimal accounts, you have less evidence to base your decision on. In these cases, it's often prudent to be more cautious with the payment terms you offer.

Information Available	Full Accounts	Abridged Accounts	Micro-entity Accounts
Full Balance Sheet	Yes	No (Abridged version)	No (Simplified version)
Profit & Loss Account	Yes	No (Optional to file)	No
Cash Flow Statement	Yes (if medium/large)	No	No
Directors' Report	Yes	No (Optional)	No
Detailed Notes	Yes	Limited	Very limited
Auditor's Report	Yes (if audited)	Yes (if audited)	No (Audit not required)

What to Do With This Information

Armed with your findings, you can now make an informed decision rather than a hopeful guess.

• Green Flags (Looks good): The company is profitable, has positive net assets, a healthy cash balance, and a reasonable balance of debtors and creditors. You can feel more confident proceeding with your standard payment terms (e.g., 30 days), though it's still wise to have a robust follow-up process.
• Amber Flags (Some concerns): Perhaps they have low cash reserves, a history of small losses, or appear to pay suppliers slowly. You don't want to turn down the work, but you need to limit your exposure.
  • Negotiate: Politely push back on 60-day terms. "Our standard policy is 30-day terms, which helps us manage cash flow as a small business. Would that be workable?"
  • Ask for a deposit: Request 25% or 50% upfront. This ensures you've covered your initial costs and confirms they have the ability to make a payment.
  • Phase the project: Break a large project into smaller, separately invoiced stages. This limits your risk at any one time.
• Red Flags (Looks bad): The company has negative net assets, a history of large losses, or the auditors have flagged a "going concern" risk.
  • Insist on pro-forma: Issue an invoice for 100% of the value to be paid in full before you begin any work. Frame it as policy: "For all new client relationships, our policy is to work on a pro-forma basis for the first project."
  • Politely decline: If they refuse to pay upfront, you should be prepared to walk away. It's better to lose a potential project than to complete the work and lose the entire payment.

Even with the healthiest-looking clients, consistent credit control is non-negotiable. Manually keeping track of who owes what and when they need a reminder is time-consuming and prone to error. Using a tool like InvoiceReminder can automate the process of chasing payments, ensuring you follow up consistently and professionally without the manual effort.

Automate Your Credit Control

Performing due diligence on a client's accounts is the first step in protecting your cash flow. The second is ensuring you have a systematic and professional process for chasing invoices once they are issued. This is where automation can transform your accounts receivable.

InvoiceReminder helps UK small businesses, freelancers, and accountants to stop chasing invoices by hand. By connecting to your accounting software like Xero, QuickBooks, Sage, or FreeAgent, it sends scheduled email reminders based on rules you define—from a friendly nudge before the due date to a firm final notice when an invoice is severely overdue. The Free plan currently offers unlimited email reminders at no cost, making it easy to get started with professional, automated credit control. InvoiceReminder is built by the team behind WeCovr, an established UK company authorised and regulated by the Financial Conduct Authority for its insurance activities, having arranged over 1,000,000 policies.

Frequently asked questions

Is it rude to check a potential client's accounts?

Not at all. It is standard business due diligence. The information on Companies House is public for this very reason—to promote transparency and allow suppliers, lenders, and potential partners to make informed decisions. It's a normal and sensible part of risk management.

What if the company's accounts are overdue for filing?

This is a significant red flag. While there can occasionally be administrative reasons, it often suggests disorganisation at best, and at worst, that the company is deliberately delaying the release of bad financial results. You should treat this situation with extreme caution.

The company is brand new and has no accounts filed. What should I do?

A new company is a complete unknown. It has no track record, and its risk profile is impossible to assess from public data. In this scenario, it is wisest to protect your business by insisting on payment upfront (pro-forma) or, at the very least, a substantial deposit of 50% or more before commencing work.

Can I just rely on a credit reference agency report instead?

Credit reports from agencies can be a useful shortcut, as they often summarise Companies House data and add other information (like court judgments). However, they are not free, and their scoring models can be opaque. Doing your own quick, five-minute check as described above is free and gives you a direct feel for the actual numbers, which can be more insightful than a generic credit score.

Does a big turnover figure mean the company is safe to work with?

No, not necessarily. Turnover (or revenue) only shows the value of sales, not the company's financial health. A business can have a very high turnover but be dangerously unprofitable and extremely cash-poor. Profitability and cash in the bank are far more important indicators of a company's ability to actually pay its bills.

What does 'Going Concern' mean in the accounts?

"Going concern" is the accounting assumption that a business will continue to operate for the foreseeable future (at least the next 12 months). If an auditor's report highlights a "material uncertainty related to going concern," it is a formal warning that there is a significant risk the company could fail or cease trading within the year. It is one of the most serious red flags you can find.