The 21 Don’ts of Granting Credit

Common credit control mistakes that lead to late payment and bad debts

Offering credit to customers can help businesses grow. Many companies find that allowing customers to pay on terms increases sales and builds long-term relationships.

However, granting credit also introduces risk. Without careful credit management, invoices can become overdue and eventually turn into bad debts.

Even late payments can be damaging financially as they tie up capital and eat into limited management time.

In most cases, bad debts do not appear suddenly. They develop gradually as small weaknesses in credit control allow payment delays to grow into more serious problems.

Below are 21 common mistakes businesses make when granting credit and managing customer accounts.

Before You Grant Credit

1. Don’t Fail to Identify the Correct Legal Debtor

It is essential to confirm exactly who you are trading with. A trading name may not reflect the legal entity responsible for payment.

Always ensure you know whether the customer is a limited company, partnership or sole trader, and that invoices are issued to the correct legal entity.

When you only know the name of the shop or restaurant ( ABC stores ) , have a trading names (D & E Builders), or an incomplete name ( Mr F Smith ) you are setting yourself up for trouble down the line.

2. Don’t Grant Credit Without Credit Checking the Customer

Extending credit without checking a customer’s financial standing is effectively trading blind.

A credit report can reveal valuable information such as financial strength, payment history, court judgments and director history.

A simple check before trading can prevent serious problems later.

3. Don’t Allow Sales Pressure to Override Credit Control

So you’ve credit checked the new customer and all sorts of red flags are raised.

Sales teams naturally want to win business, but credit decisions should never be driven solely by the desire to secure an order.

Granting excessive credit to win sales can expose your business to unnecessary risk. A sale is only profitable once the invoice has been paid.

You can sell to risky customers, but you need to manage the exposure.

4. Don’t Leave Credit Terms Unclear

Your payment terms should always be clearly communicated and agreed before trading begins.

Customers should understand:

• how many days they have to pay
• when the payment period starts
• what happens if payment is late

Clarity prevents misunderstandings and strengthens your position if payment becomes overdue.

5. Don’t Assume Long-Standing Customers Are Always Safe

Some of the largest bad debts arise from customers who have traded with a supplier for many years.

Businesses change over time, and even reliable customers may encounter financial difficulties. Regular credit checks help ensure long-standing customers remain financially stable.

6. Don’t Forget Credit Risk Monitoring

Checking a customer once is not always enough.

Monitoring services can alert you to changes such as deteriorating financial performance, new county court judgments or director changes that may affect credit risk.

Staying informed allows you to react early.

7. Don’t Ignore Warning Signs

Late payments, increasing credit requests, trade rumours or sudden changes in company management can all indicate that a business is under financial pressure.

Ignoring these warning signs allows risk to build unnoticed until invoices become difficult to recover.

8. Don’t Accept Customers at Face Value Without Verifying Them

A business may appear professional online, but appearances can sometimes be misleading.

Where possible, verify that the business genuinely operates from its stated premises and is trading legitimately.

Basic verification can prevent dealing with fraudulent, unreliable or short-lived businesses.

9. Don’t Ignore the Risks of Large Orders from New Customers

A very large order from a customer with little trading history should always prompt caution.

While the opportunity may appear attractive, large initial orders can expose your business to significant risk if payment is not received.

However, any sudden change in ordering styles should be investigated to make sure its legitimate. Sometimes fraudsters will place a series of small orders first, and pay straight away to build trust, before placing a big order they have no intention of paying for.

10. Don’t Forget to Consider Director Guarantees for Higher-Risk Accounts

When dealing with companies that have limited assets or a short trading history, requesting a director’s personal guarantee may provide additional protection.

Without this safeguard, recovery options may be limited if the company fails.

When Trading Begins

11. Don’t Assume the Customer Is Happy With the Goods or Services

Disputes often arise when issues with delivery or service are not addressed early.

Checking that the customer is satisfied shortly after supply can prevent disputes being used later as a reason to delay payment.

The Invoicing Stage

12. Don’t Delay Sending the Invoice

Late invoicing frequently leads to late payment.

If invoices are not raised promptly, the payment clock does not begin and approval processes on the customer’s side may be delayed.

13. Don’t Neglect the Paperwork

Invoices should always be supported by clear documentation such as purchase orders, delivery notes or confirmation of completed work.

Without proper documentation, customers may dispute invoices or delay payment.

14. Don’t Assume the Invoice Has Been Received

Invoices sometimes fail to reach the correct person within the customer’s accounts department.

Confirming that the invoice has been received and logged can prevent unnecessary payment delays.

Managing Overdue Invoices

15. Don’t Leave Disputes Unresolved

Disputes that are allowed to drift can delay payment indefinitely.

Any queries raised by a customer should be investigated and resolved quickly to keep the account moving toward payment.

16. Don’t Delay Chasing Overdue Invoices

Prompt and consistent follow-up is essential once an invoice becomes overdue.

Delaying the first reminder can signal to the customer that payment urgency is low.

Top credit managers will even send reminders before the due date, to communicate that prompt payment is expected.

17. Don’t Let Credit Control Drift

When overdue accounts sit on the ledger without clear action, the likelihood of recovery begins to decline.

When weeks pass between communications, all urgency is lost and the customer gets the clear message that payment is not important.

A structured credit control process ensures that overdue invoices are followed up consistently.

18. Don’t Accept Endless Excuses for Late Payment

Some late payers rely on repeated explanations such as administrative delays or promises that payment will be made soon.

While genuine delays can occur, repeated excuses without action should always raise concern.

Keep a log of excuses already used and refer to it when replying to excuses.

19. Don’t Be Reluctant to Challenge Poor Payment Behaviour

Allowing customers to develop poor payment habits can damage your cash flow.

Professional and consistent credit control helps ensure payment terms are respected.

It is okay to call out poor payment behaviour in a professional and polite manner.

When Escalation Is Necessary

20. Don’t Delay Escalating When Payment Doesn’t Arrive

When internal chasing has failed, escalation may be necessary.

Taking action promptly increases the chances of recovering the outstanding balance while maintaining professional relationships.

Bad payment practice should have consequences. Cut the credit supply, stop further orders, pass to a third party collector such as CPA or even take legal action.

21. Don’t Ignore Your Right to Late Payment Interest and Compensation

UK legislation allows businesses to claim interest and compensation on overdue commercial invoices.

Many businesses never exercise this right, even when payments are significantly delayed.

Using these rights can encourage better payment behaviour.

Most bad debts do not happen suddenly.

They develop slowly through a series of small credit control mistakes.

Avoiding the 21 mistakes above will dramatically reduce the risk of customers becoming bad debts in the first place.

Protecting Your Cashflow

Good credit control is not simply about chasing debts. It involves managing risk from the moment credit is granted through to the final payment.

At The Credit Protection Association, we help businesses protect their cash flow through credit reports, monitoring services and professional overdue account recovery.

With over a century of experience assisting UK businesses, CPA helps ensure invoices are paid promptly while maintaining valuable customer relationships.