What to check before extending credit to a new UK business client

By InvoiceReminder Editorial Team · Published 6th August 2026

Extending credit to a new business client is a fundamental act of trust. You are delivering your work, your product, and your expertise with the expectation of being paid later. For most UK small businesses, freelancers, and agencies, this is simply how business is done. But what happens when that trust is misplaced? A late payment, or worse, a complete non-payment, can cause serious cash flow problems, immense stress, and consume hours of your time that could have been spent on billable work. This guide provides a practical, step-by-step framework for checking the creditworthiness of a new UK business client before you start the work, tailored for businesses that don't have a dedicated credit control department.

Why Bother Credit Checking? The Hidden Costs of a Bad Client

It's tempting to skip due diligence, especially when you're keen to win a new piece of business. You might feel it's awkward or that it implies you don't trust the client. In reality, performing basic checks is a standard, professional business practice that protects you from significant risk.

The cost of a bad debtor goes far beyond the value of the unpaid invoice. Consider the knock-on effects:

Wasted Time: Every hour spent chasing a bad debt is an hour you can't bill to another client or use to grow your business.
Cash Flow Disruption: Your own bills don't stop. A significant unpaid invoice can mean you struggle to pay suppliers, staff, or even yourself.
Legal and Recovery Costs: If you have to resort to a debt collection agency or legal action, the costs can quickly spiral, often eating up a large chunk of the amount you're owed.
Stress and Morale: The emotional drain of dealing with a difficult or non-paying client is a real and significant cost to your well-being and that of your team.

A few minutes of upfront checking can save you weeks of hassle down the line. It's not about being cynical; it's about being a prudent business owner.

The Credit Checking Spectrum: From Free & Fast to Paid & Detailed

Credit checking isn't an all-or-nothing process. There's a spectrum of options available, from quick, free checks using public information to comprehensive paid reports. The level of detail you need depends on the value and risk of the work you're undertaking.

For a small, one-off project worth a few hundred pounds, the free, essential checks are likely sufficient.
For a larger, ongoing contract worth thousands, investing in a low-cost, detailed report is a sensible business expense.

We'll walk through three levels of checks you can implement, starting with the free and essential.

Level 1: Free, Essential Due Diligence (The 'Five-Minute' Check)

These steps use publicly available, official UK government sources. They cost nothing but a few minutes of your time and should be your absolute minimum level of due diligence for any new business client that is a limited company.

Check their Companies House Record

Companies House is the UK's registrar of companies. Every limited company in the UK must be registered here, and their public filings are available to search for free.

Go to the official Companies House service and search for the company name or number. Here's what to look for:

Company Status: Is it 'Active'? If it shows 'Dissolved', 'In Liquidation' or there's a 'Proposal to strike off', that is a major red flag.
Incorporation Date: How long has the company been trading? A brand-new company (incorporated in the last few months) has no track record and represents a higher risk than an established one.
Filing History: Look at their history of filing accounts and confirmation statements. Are their accounts listed as 'overdue'? This is a huge warning sign that suggests disorganisation or financial distress.
People: Check the listed officers. Who are the directors? You can click on a director's name to see their other current and past appointments. A history of involvement with numerous dissolved companies is a cause for concern.

Look up The Gazette

The Gazette is the UK's official public record. It's where legal notices, including insolvency and bankruptcy notices, must be published. Searching The Gazette is a crucial step that many small businesses miss.

Search the company name for notices relating to:

Winding-up petitions
Insolvency appointments
Creditors' meetings

Finding a recent notice of this kind means the company is in serious financial trouble, and you should not extend credit to them under any circumstances.

Do a Quick Online Search

Beyond official records, a simple web search can reveal a lot about a potential client.

Google the Company Name: Do they have a professional-looking website? Does the address and phone number on their site match the details on Companies House?
Check for Reviews: Look on sites like Trustpilot, Google Reviews, or industry-specific forums. A pattern of negative reviews, especially any mentioning non-payment to suppliers, is a clear warning.
Social Media Presence: Do they have a LinkedIn company page? Is it active and professional? A complete lack of online presence for a modern business can be unusual.
Google the Director(s) Names: A quick search might bring up news articles or other business interests that give you a fuller picture of who you're dealing with.

Verify their VAT Number

If a client gives you a VAT number on their purchase order or in an email, you can and should verify it. Use the free UK government's 'Check a UK VAT number' service. This confirms that the number is valid and tells you the name and address of the business it's registered to. If the details don't match what the client has told you, you need to ask why.

Level 2: Low-Cost, Deeper Insights

If the project is of a higher value or the free checks have raised some minor questions, it's worth digging a little deeper.

Requesting Trade References

A trade reference is a recommendation from one of the client's other suppliers. You can simply ask your new client to provide contact details for one or two companies they've worked with recently.

When you contact the referee, ask simple, direct questions:

How long have you been doing business with them?
What is your average invoice value?
Do they consistently pay their invoices on time and within terms?
Would you be happy to work with them again?

Keep in mind that a client will only ever provide referees who they know will give a positive review. The real value of this step is often in the client's reaction. A professional, well-run business will have no issue providing references. A client who becomes defensive or refuses is telling you something important.

Using a Paid Credit Reference Agency Report

For a relatively small fee (typically £10-£30), you can purchase a detailed credit report on any UK limited company from a credit reference agency like Experian, Equifax, or Creditsafe. These reports package up all the public data and combine it with their own information to provide a powerful, easy-to-digest summary.

Here's how a paid report enhances the free checks:

Feature	Free Public Record Checks	Paid Credit Report
Company Status	Yes (Companies House)	Yes, clearly highlighted.
Director Info	Yes (Companies House)	Yes, often with linked directorships and past failures.
Insolvency Notices	Yes (The Gazette)	Yes, clearly flagged and explained.
Filing History	Yes (Companies House)	Yes, with analysis of the key figures.
County Court Judgements (CCJs)	No (requires a separate, paid search of the register)	Yes, listed in detail including dates and amounts.
Credit Score/Rating	No	Yes, a simple score (e.g., 1-100) summarising the risk.
Recommended Credit Limit	No	Yes, an indicative figure of how much credit the agency suggests is safe to extend.
Payment History Data	No	Yes, some agencies include data on how quickly the company pays its bills to other suppliers.
Cost	Free	Approximately £10 - £30 per report.

For a significant project, the cost of a report is a tiny and worthwhile investment for the peace of mind it provides. A low credit score or the presence of a County Court Judgement (CCJ) is a very strong signal to proceed with extreme caution.

Level 3: Formalising the Relationship

Credit control doesn't end with the initial check. It's about setting up a professional framework for your entire relationship with the client.

The Power of a Simple Credit Application Form

For larger or ongoing clients, consider asking them to complete a simple client application form. This doesn't need to be a long, intimidating document. It simply formalises the information-gathering process.

Your form could include:

The company's full legal name and trading name.
Company registration number and VAT number.
Registered office and trading address.
Contact details for their accounts payable department.
The names of the company directors.
Trade reference contact details.
A section where they sign to acknowledge and agree to your payment terms.

The act of asking a client to complete this form sets a professional tone from day one. It establishes that you are organised and take payment seriously.

Setting Clear Payment Terms from the Start

Never start work without agreeing on payment terms in writing. This should be clearly stated on your quote, your proposal, and your contract or terms of business.

Standard UK business-to-business terms are often 30 days from the date of the invoice, but you are not obliged to offer this. For new clients, you might insist on:

14-day terms: This shortens your risk exposure.
Payment on completion: No credit is extended; payment is due immediately upon delivery of the work/goods.
Pro-forma: Payment is required in full, upfront, before any work begins.

Whatever you choose, make sure it is explicitly agreed upon before you start.

The Role of Your Contract and Terms & Conditions

Your contract or T&Cs are your legal safety net. They should reiterate your payment terms and state what happens in the event of late payment.

Crucially, for business-to-business transactions in the UK, you have a statutory right to claim interest and compensation for late payments under the Late Payment of Commercial Debts (Interest) Act 1998. Even if it's not in your contract, the law is on your side. You can charge:

Statutory Interest: 8% plus the Bank of England base rate.
Fixed Compensation: A one-off sum per overdue invoice, depending on the debt size:
- £40 for a debt less than £1,000
- £70 for a debt between £1,000 and £9,999.99
- £100 for a debt of £10,000 or more

Mentioning your right to use this legislation in your T&Cs can be a powerful deterrent to late payers.

Red Flags to Watch Out For

As you conduct your checks, keep an eye out for these common warning signs:

A very recently incorporated company with no trading history.
Directors who are associated with a long list of dissolved companies.
Overdue accounts or confirmation statements on Companies House.
Any insolvency notices in The Gazette.
A CCJ found on a credit report.
Refusal or reluctance to provide trade references or basic company details.
Using generic personal email addresses (e.g., @gmail.com) for a limited company's official business.
No professional website or a physical address that is only a mail-forwarding service.
Excessive pressure to start work immediately and grant a large line of credit without question.

One of these flags might be explainable, but a combination of two or more should set alarm bells ringing.

What if They Fail the Checks? How to Say 'No' (or 'Yes, But...')

So, you've done your due diligence and the results aren't good. What now? It can feel awkward to turn down business, but you must protect your own company's financial health.

You have a few options:

Politely Decline: You can simply state that you don't have the capacity to take on the project right now. You don't have to go into detail about their poor credit rating. A simple, "Thank you for the opportunity, but we're unable to move forward at this time," is sufficient.
Offer Alternative Terms (The 'Yes, But...' Approach): This is often the best solution. It allows you to take on the work while completely removing the risk of non-payment. You can professionally explain that as it's a new trading relationship, your policy requires different terms. Propose one of the following:
- 100% Pro-forma: "For all new clients, we operate on a pro-forma basis for the first project. Please find attached our invoice for payment before we schedule the work in."
- 50% Upfront, 50% on Completion: This is a good compromise that shows goodwill while still protecting you from a total loss.
- Staged Payments: For a long project, break it down into milestones with payment due on completion of each stage, before the next one begins.

A legitimate client who wants to work with you will usually understand and accept these reasonable, risk-mitigating terms. A client who protests or walks away was likely a credit risk you are better off avoiding.

After the Check: The Importance of Consistent Follow-Up

Your credit control process starts with these pre-emptive checks, but it doesn't end there. Even good clients can pay late if you don't have a robust invoicing and collections process. Sending your invoice promptly and having a clear, consistent follow-up schedule is vital. Manually tracking what's due, when, and who you need to chase can be a time-consuming administrative burden, and it's easy for an overdue invoice to slip through the cracks when you get busy.

This is where a simple system can make a huge difference. Using a tool that automatically chases unpaid invoices ensures every client gets the right reminder at the right time, without you having to manually send emails. For example, a platform like InvoiceReminder connects to your accounting software and sends out a sequence of polite-but-firm reminders on your behalf, helping you get paid faster and reducing the manual work of credit control.

Ultimately, combining sensible upfront checks with a systematic chasing process is the key to maintaining healthy cash flow and protecting your business from bad debt.

Frequently Asked Questions

How much does it cost to credit check a UK company?

It can be completely free. Using public records like Companies House and The Gazette costs nothing and provides essential information. For a more detailed analysis, including a credit score and CCJ data, a paid report from a credit reference agency typically costs between £10 and £30.

Can I charge interest on a late payment in the UK?

Yes. For business-to-business debts, the Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to claim interest (currently 8% plus the Bank of England base rate) and a fixed compensation sum of £40, £70, or £100 depending on the size of the debt, even if it's not in your contract.

What is a CCJ?

A CCJ stands for County Court Judgement. It is a type of court order in England, Wales, and Northern Ireland that can be issued against a company (or individual) that fails to pay money it owes. The presence of a CCJ on a company's credit report is a major red flag, as it means they have been taken to court for non-payment and lost.

Is it rude to ask a new client for information?

Not at all. Asking for company details, trade references, or asking them to complete a client form is standard business practice for any company that takes its finances seriously. It shows you are professional and organised. A legitimate client will understand and respect this; a client who objects is often a cause for concern.

What's the difference between a sole trader and a limited company for credit risk?

A limited company has its own legal identity, separate from its owners (directors/shareholders). This means if the company fails and cannot pay its debts, the owners' personal assets are generally protected (this is called 'limited liability'). A sole trader is not legally separate from its owner. If their business incurs debts it cannot pay, the owner is personally liable, and their personal assets could be at risk. This can sometimes make a sole trader a lower risk, but they can be harder to check as they aren't on Companies House.

Should I always get payment upfront from a new client?

While it's the safest option and removes all credit risk, it may not always be commercially practical, as many businesses expect to be offered credit terms. A good approach is to be risk-based: for smaller projects or clients that pass all your checks, standard 30-day terms might be fine. For larger projects or clients that present a higher risk, insisting on partial or full payment upfront is a sensible precaution.

Stop Chasing Invoices Manually

Thorough client checks are the first step to protecting your cash flow, but a consistent follow-up process is just as crucial. InvoiceReminder helps UK small businesses, freelancers, and accountancy practices automate the entire invoice chasing process. It connects to Xero, Sage, QuickBooks, and FreeAgent to send scheduled, escalating email reminders for overdue invoices, freeing you from the manual work of credit control. The Free plan currently includes unlimited email reminders at no cost. InvoiceReminder is built by the team behind WeCovr, a UK company authorised and regulated by the Financial Conduct Authority, which has arranged over one million insurance policies.