If you’ve successfully sold your product/service to a new customer you will need to think about how much credit, if any, to extend to them. Even though you may be dealing with a large reputable business, you must conduct your own research into them to decide the level or risk which you expose yourself to.

What can you do to find out more about your customer?

1. Gather trade references from other suppliers which the customer deals with
2. Conduct a credit search if your budget allows
3. Ask for your customer to sign a bank status enquiry form for you to submit to their bank
4. Search Google’s News feature to find anything about them in the press

When all this has been done, think about what level of trade you will be carrying out with them. If the customer has fantastic trade references and credit checks, but their turnover will only be £1,000 per month, it’s pointless giving them a £10,000 credit limit. You run the risk of the new customer loading up their account to the £10k limit and then struggling to get paid. Make sure that the credit limit is realistic. Bear in mind that you will still be expected to pay your suppliers on time even if you are not being paid to terms by your customers.

Payment terms will always be an issue; you want to be paid quickly and your new customer will want to extend the credit for as long as possible. Most businesses operate on 30 days from invoice date, or end of month following (which will average at about 45 days credit). Again you need to decide the level of risk you wish to be exposed to. If you offer a customer 60 days credit, it could be 90 days before you find out that they are not going to pay you. This will only happen in the minority of cases but it will still be annoying when it happens and have a serious impact on your business. What-ever payment terms you set make a note to contact the customer a week before the first invoice is due to check that it has been passed for payment.

If you are experiencing late payments do not be afraid to put the customer’s account on ‘stop’ until the payment has been received. Doing this will no doubt upset the customer, but are they really a customer if they aren’t paying to terms and causing you problems? Start as you mean to go on.

Regularly review the credit limits to ensure that they are still realistic for the customer. If your product sells well you may need to increase the customer’s credit limit to enable more trade with them.

If you and your customer know where you each stand from the first time you trade together, it will help to maintain a happy working relationship.