In the world of business, prevention is almost always better than cure, especially when it comes to unpaid invoices. While recovering debt is essential, avoiding bad debt altogether can save your business time, stress, and money.

One of the most effective ways to reduce your risk is by thoroughly vetting new clients before you extend credit or enter into long-term agreements. In this post, we’ll walk you through practical, actionable steps to help you make better-informed decisions.

Conduct Credit Checks

Before you do business with a new client, particularly if you’re offering credit terms, it’s wise to run a commercial credit check. This will give you an overview of:

• Their credit score
• Payment history
• County Court Judgments (CCJs)
• Insolvency records

Use Strong Terms & Conditions

Your terms and conditions should clearly outline:

• Payment terms (e.g., “14 days from invoice date”)
• Late payment charges
• Your right to suspend services or charge interest
• Ownership of goods (in case of physical product sales)

Tip: Make sure the client signs these before you begin work. That signature can save you in court if things go south.

Get a Signed Credit Agreement

If you’re offering a credit facility, treat it like a loan. Ask clients to fill out a formal credit application form, including company registration details, directors’ information, and bank references.

For added protection: Consider a personal guarantee from the directors for limited companies.

Check Their Company Status

Search the company on Companies House. Look for:

• Filing history and overdue accounts
• Company directors
• Recently dissolved or phoenix companies
• Frequent name changes

Red flags here could indicate financial instability or attempts to avoid creditors.

Set Internal Credit Limited

Just because a client passed your checks doesn’t mean you should offer unlimited credit. Set internal credit limits for all clients, especially new ones, and review them regularly based on payment behaviour.

Start small and increase limits only once trust is built.

Watch for Early Warning Signs

Even after onboarding, stay alert to changes in client behaviour. Warning signs include:

• Delayed payments or frequent excuses
• Requests to change payment terms
• Difficulty getting hold of decision-makers
• Staff turnover in finance departments

These may be early indicators of cash flow issues and a sign to tighten credit controls.

To Conclude

Taking on new clients is exciting, but protecting your cash flow must remain a priority. By putting a solid vetting process in place, you reduce your exposure to bad debt and strengthen the financial health of your business.

Need help with your credit control or debt recovery? Our team offers tailored solutions that start at the first sign of risk, not just when debts go overdue. Get in touch to learn more.

CLICK HERE to submit your debt to us today

Disclaimer: The information provided in this article represents the opinions and insights of Scott & Mears. It is intended for informational purposes only and should not be considered as professional financial or legal advice. Business owners and individuals seeking financial guidance should consult with qualified professionals to address their specific financial needs and circumstances. Scott & Mears disclaims any liability for decisions made based on the content of this article.

Published: 21/07/25