You Know the Business Name. But Do You Know Who You’re Giving Credit To?

An established name, a convincing website and a healthy order book can create confidence. But before offering credit, there’s a more fundamental question worth answering.A new customer places an £18,000 order. The business looks established, the paperwork is in order, and the sales team is keen to proceed. Then comes the request: 60-day payment terms. Nothing unusual there. Except that nobody has established precisely who is buying the goods. Is the customer a limited company, a sole trader or a partnership? Does the trading name match the legal entity? And, if payment never arrives, who is actually responsible? These are hardly the most exciting questions in a sales conversation. They may, however, be among the most important.

A familiar name can conceal an unfamiliar risk

Consider a business trading as Brown Brothers. It has premises, a website and a respectable trading history. On the surface, there is little reason to hesitate. But a trading name tells you remarkably little about the legal structure behind it. A limited company is legally separate from its owners. A sole trader, by contrast, is generally personally responsible for business debts. Partnerships have their own legal considerations. As GOV.UK’s guidance on business structures makes clear, these distinctions affect how businesses operate and where responsibility lies. For a supplier, they also affect what information is available before a credit decision is made.

Knowing the customer is not quite the same as knowing who you’re trading with.

What can you actually verify?

Companies House records provide a useful starting point for assessing incorporated businesses. Depending on the entity, suppliers may be able to examine registration details, directors or members, filing history and published accounts. For sole traders and ordinary partnerships, comparable public financial information may be much harder to obtain. That doesn’t make these businesses inherently less creditworthy. It simply means the assessment may require a different approach.

An LLP and an LP should not be confused. An LLP generally gives its members limited liability and must file annual accounts. An LP must have at least one general partner with unlimited liability for partnership debts and at least one limited partner. Its accounts are generally not filed publicly, although certain structures have filing obligations. A commercial credit report can help bring relevant information together. But the quality of any assessment depends on the information behind it. A favourable score is not a promise of payment. Equally, a lack of public information should not be mistaken for evidence of financial difficulty.

The distinction matters. CPA’s Credit Application Forms can help members gather the details needed to identify the legal entity they are trading with before agreeing credit terms.For sole traders and ordinary partnerships, CPA also offers Business Owner Reports, subject to availability and written consent from the individuals concerned. These can help assess creditworthiness, but a personal credit report does not establish someone’s net worth.

The VAT number question

One useful check is whether a prospective customer is VAT registered. Under HMRC’s current rules, businesses generally become liable to register when taxable turnover exceeds £90,000 over the relevant period, subject to the applicable conditions and exceptions. A business below that threshold may have perfectly legitimate reasons for not being registered. Where a VAT number is supplied, it can be checked using the government’s VAT verification service. Where it isn’t, the sensible response is to understand  why, rather than automatically refuse credit. The objective is to establish what can be verified, identify what remains uncertain and decide whether the proposed terms reflect that uncertainty.

The £18,000 order that became £54,000

Return to our new customer. The first £18,000 order is approved. Before payment falls due, another order arrives. Then a third. The relationship appears to be progressing well. But the supplier now has £54,000 outstanding against a customer whose financial position may never have been properly assessed. That’s the uncomfortable arithmetic of selling on credit: commercial success can increase exposure just as quickly as it increases revenue. And the original decision to approve a single £18,000 order may no longer be appropriate.

How much credit are you really extending?

Where the available information doesn’t justify the exposure, a smaller initial credit limit, deposit, staged payment arrangement or shorter terms may provide a more proportionate way forward. CPA explores further practical safeguards in its article on 21 credit-control best practices.

The customer you checked three years ago

There’s another complication. Creditworthiness isn’t static. A business that comfortably supported a £10,000 credit limit three years ago may now be ordering £40,000 a month. Its financial circumstances may have changed. Its payment behaviour may be different. Yet the original assessment remains on file, unquestioned. This is why ongoing company credit monitoring matters. A credit decision should reflect the customer you’re trading with today, not simply the one you first approved.

The same principle applies whether you’re dealing with a new customer or one you’ve known for decades.

Confidence should be earned, not assumed

None of this is an argument for making it harder to win new business. Quite the opposite. Good credit control gives businesses the confidence to extend terms where the evidence supports them and the judgement to introduce safeguards where it doesn’t. A familiar trading name may open the door to a commercial relationship. It shouldn’t, on its own, determine the credit limit. Before agreeing to supply on credit, three questions deserve clear answers: Who is legally responsible for the account? What reliable information supports the decision? And how much exposure can your business reasonably accept?

If those answers aren’t clear, the time to investigate is before the invoice becomes overdue.