Every invoice you send on credit is a small loan. The customer walks away with your product or your time, and you are left holding a piece of paper that says they will pay you later. Learning how to do a credit check on a customer is how you make sure that paper is worth something.
For a UK small business, a bad debt can be devastating. One unpaid invoice of a few thousand pounds can wipe out months of profit, stall your cash flow and force you to turn down good work because you cannot afford the materials. Yet many small firms offer payment terms of 30 days to anyone who asks, without ever checking whether the customer can actually pay.
This guide shows you exactly how to do a credit check on a customer as a small business in the UK. You will learn which free checks to run first, when it is worth paying for a full report, which red flags matter most and how to set a sensible credit limit. By the end, you will have a simple repeatable process you can use every time a new customer asks for credit.
What a Credit Check on a Customer Actually Shows
A customer credit check is simply a look at a business’s financial track record before you agree to let them pay later. It will not tell you the future, but it does tell you how that customer has behaved in the past, and past behaviour is the best predictor you have.
A good check will show you whether the company legally exists, how long it has been trading, whether its accounts are filed on time, whether courts have ruled against it for unpaid debts and how quickly it pays other suppliers. Put together, these clues paint a picture of how risky it would be to offer that customer credit.
For limited companies, most of this information is public and free. For sole traders and partnerships there is less public data available, so you will lean more on credit reports, references and your own judgment. We will cover both situations below.
Why Credit Checking New Customers Matters for Small Businesses
Large companies have credit control teams. Small businesses have you, and your time is already stretched. That is exactly why a quick check matters so much: ten minutes of research can save you months of chasing payments you were never going to receive.
The numbers behind this are sobering. UK small businesses are regularly paid late, and late payment is one of the most common reasons healthy firms run into cash flow trouble. If a customer was already paying other suppliers late before they came to you, there is a strong chance they will treat you the same way.
Credit checking also protects your relationships. It is far easier to set firm terms at the start, when everyone is friendly, than to argue about money six months into a working relationship. A check gives you the facts you need to have that conversation with confidence. If payments do slip later, our guide on how to chase unpaid invoices in the UK walks you through the next steps.
How to Do a Credit Check on a Customer in the UK
You do not need expensive software or a finance department. The process below starts with the free checks every UK business can run, then moves on to paid options for when the stakes are higher.
Step 1: Start with the Free Companies House Check
If your customer is a limited company, LLP or limited partnership, Companies House is your first stop. The online register is free to search and it confirms the basics: the registered company name, company number, registered office address, date of incorporation and the names of current directors.
Look closely at the filing history. Are the annual accounts and confirmation statements filed on time, or is there a pattern of late filing? Late filing is a classic early warning sign of a business in trouble. Also check the officers section for directors who have been involved in a string of dissolved companies, and glance at the charges register to see whether the company has large secured loans against its assets.
You can also search The Gazette, the UK’s official public record, for insolvency notices, winding up petitions and compulsory strike off actions involving the company. A single notice here can tell you more than a glossy website ever will.
Step 2: Run a Business Credit Report
When the order value is large enough to matter, buy a business credit report from a UK credit reference agency. Experian, Equifax, Creditsafe and Dun and Bradstreet all sell reports on UK companies, usually from around ten pounds for a single report, with monthly subscriptions available if you check customers regularly.
A report typically includes a credit score or risk rating, a recommended credit limit, the company’s payment performance with other suppliers, any County Court Judgments registered against it and details of the filed accounts. Read the payment performance section carefully: a business that pays most suppliers twenty days late will probably pay you twenty days late too.
Some agencies also offer monitoring, which alerts you if a customer’s score drops or a new judgment appears. If you have a handful of key customers who owe you significant money at any one time, monitoring is a cheap form of insurance.
Step 3: Look for County Court Judgments and Payment Behaviour
A County Court Judgment, usually called a CCJ, is a court order made when a business fails to repay money it owes. CCJs are public records in England and Wales, and their presence on a credit report is one of the strongest warning signs you will find.
One old, small and satisfied CCJ might be a blip. Several recent or unsatisfied judgments are a pattern, and a pattern is a decision made for you. If the report shows judgments, think very carefully before offering any credit at all, and if you do proceed, ask for payment upfront or a personal guarantee from a director.
Beyond CCJs, look at the trend. Is the customer’s payment behaviour getting worse over time? A score that has slid over the last year tells you the business is heading in the wrong direction, even if it has not defaulted yet.
Step 4: Take Up Trade References
Ask the customer for two trade references, ideally from suppliers of a similar size to you, and then actually contact them. An email is easy to ignore or fake, so pick up the phone. This single habit separates businesses that get paid from businesses that get excuses.
Do not ask whether the customer is “good”. Ask specific questions instead: how long have you traded with them, what are their usual payment terms, how many days late do they typically pay, what is the largest amount they have owed you at one time, and would you extend their credit limit today? The answers to those five questions will tell you everything you need to know.
Be wary if a customer cannot or will not provide references. A legitimate business with nothing to hide will usually hand them over without fuss. Reluctance is information in itself.
Step 5: Check the Directors Behind the Business
Companies do not pay invoices, people do. Use Companies House to look at the directors’ history: have they run other companies that were dissolved owing money? A director with three failed companies behind them deserves extra scrutiny, even if the current company looks tidy on paper.
For larger credit limits, you can also ask the director for a personal guarantee, which makes them personally liable if the company does not pay. Many small businesses skip this step because it feels awkward, but it is standard practice in UK trade credit and a serious customer will understand why you are asking.
Keep a simple record of every check you run, including the date and what you found. Good records protect you if a debt ever goes to court, and they make repeat checks far quicker. For keeping your financial paperwork in order generally, see our guide on how to keep business receipts for tax in the UK.
Red Flags That Should Make You Think Twice
Not every warning sign means you must walk away, but each one should tighten your terms. Watch out for customers who:
- Have changed their company name or registered office several times in a short period
- File their accounts late at Companies House, or file accounts that reveal very little
- Have recent or multiple County Court Judgments on their record
- Refuse to provide trade references, or provide references you cannot verify
- Push hard for generous credit terms before you have even agreed the work
- Are evasive about who owns the business or who will sign the order
- Have directors with a history of dissolved companies
One red flag might be explained. Two or three together should make you insist on payment upfront, stage payments or a personal guarantee. Your cash flow is worth more than any single order.
How to Set a Safe Credit Limit After Your Check
A credit limit is the maximum amount you are willing to let a customer owe you at any one time. It is your safety net, and every customer on credit terms should have one, even the friendly ones.
Start with the recommended limit on the credit report if you have one, then adjust it down for your own comfort. A sensible rule of thumb is to set the first limit at an amount you could afford to lose without damaging your business. You can always increase it later once the customer has paid promptly for three to six months.
Put the limit in writing as part of your terms and conditions, and make sure the customer has seen and accepted those terms before any work begins. Review limits at least once a year, or sooner if you notice payments slipping. If you work for yourself, keeping a clear picture of what each customer owes is part of good money management, much like tracking your business expenses as a freelancer.
What to Do If a Customer Fails the Credit Check
A failed check does not always mean losing the sale. It means changing the deal so the risk sits with the customer, not with you. The simplest option is to ask for payment upfront, in full or as a deposit with the balance on delivery.
Stage payments work well for larger projects: agree milestones, and do not start the next stage until the previous invoice is paid. This keeps your exposure to a single stage at any time and gives you an early warning if the customer starts paying late.
If the customer is important enough to justify the risk, consider a personal guarantee from a director, shorter payment terms such as seven days instead of thirty, or credit insurance, which pays out if the customer defaults. Whatever you agree, get it in writing before you lift a finger. And if a customer who passed your checks starts paying late anyway, act early: our guide on how to chase unpaid invoices in the UK shows you how to escalate step by step.
Common Credit Check Mistakes Small Businesses Make
The most common mistake is only checking customers after something goes wrong. By then the debt already exists. Build the check into your onboarding so every new customer on credit terms goes through the same process, with no exceptions for friends of friends or impressive websites.
The second mistake is checking once and never again. Businesses change, and a customer who was rock solid two years ago can be struggling today. Recheck your biggest debtors at least once a year, and sooner if you hear rumours or see payments slowing down.
The third mistake is confusing a credit check with a guarantee. Even a clean report is a snapshot of the past, not a promise about the future. Sensible limits, written terms and prompt invoicing are what actually protect you. The check just tells you where to set the dial.
Conclusion
Knowing how to do a credit check on a customer is a quiet superpower for a small business. It takes minutes, costs little or nothing, and it stops bad debts before they start. Start with the free Companies House and Gazette checks, buy a credit report when the order value justifies it, take up trade references by phone, and always set a written credit limit you can live with.
The businesses that survive are not always the ones with the best products. They are the ones that get paid. Make credit checking a habit, review your limits regularly, and you will spend far less time chasing money and far more time growing your business.
Frequently Asked Questions
Is it legal for a small business to credit check a customer in the UK?
Yes. Checking a limited company’s public records at Companies House or The Gazette is entirely legal, and buying a business credit report from a licensed credit reference agency is standard practice. You are checking the business, not the individual, so consumer credit rules do not apply in the same way. You do not need the customer’s permission to look at public records, though it is good practice to mention credit checks in your terms and conditions.
How much does a business credit check cost?
The basic checks are free: Companies House, The Gazette and a look at the company’s own website cost nothing. A single business credit report from agencies such as Experian, Equifax or Creditsafe usually costs from around ten pounds, with monthly subscriptions available if you check customers regularly. Compared with the cost of one unpaid invoice, it is money well spent.
Can I credit check a sole trader or only a limited company?
You can gather information on any customer, but there is less public data on sole traders and partnerships because they do not file accounts at Companies House. For sole traders and partnerships, lean more on trade references, bank references, proof of address and your own judgment. You can still ask for payment upfront or stage payments to manage the risk.
How often should I recheck a customer’s credit?
Recheck your largest customers at least once a year, and any customer whose payments start slipping should be rechecked immediately. Many credit reference agencies offer monitoring services that alert you automatically if a score drops or a new County Court Judgment appears, which is worth considering for your most important accounts.
What should I do if a customer refuses a credit check?
Treat refusal as a red flag. A genuine business with healthy finances rarely objects to a standard check. If the customer will not agree, do not offer credit terms: ask for payment upfront or stage payments instead. If they walk away over that, they have saved you from a debt you might never have collected.
