The Provisional Account: A Pre-Credit Routine for New UK Customers

Offering credit terms can turn a promising enquiry into a repeat customer. It can also turn a healthy order book into an unpaid debt. For many UK SMEs, the difficulty is not knowing that a credit check matters; it is knowing where to start, how far to go and when the evidence is strong enough to justify a limit.

The answer is a repeatable routine. It should be proportionate, documented and applied before the first invoice is raised. The aim is not to turn every new customer into a bureaucratic obstacle. It is to make the credit decision visible, defensible and easy to review.

Start with the contracting party, not the order

A common error is to check the name on the purchase order rather than the entity that will owe the money. Before assessing credit, confirm the legal identity of the customer: the registered company name, company number, registered office and trading address. Check that the name on the order, the name on the application and the name at Companies House are consistent.

If the customer is a partnership, a sole trader or a group with several subsidiaries, establish which entity is contracting and whether a parent company guarantee is being offered. A familiar brand name is not the same as a creditworthy contracting party. The invoice must be addressed to the entity that has agreed to pay.

Build the company file

Companies House is the first port of call, but the filing history matters more than the summary page. Look at accounts filed over the past three years, the confirmation statement, charges registered against the company and any insolvency history. Late filings, abbreviated accounts that reveal little, or a registered office that changes repeatedly are not conclusive, but they are context.

Check the people with significant control and the directors. Identity verification requirements at Companies House now form part of the director due-diligence picture, and a customer should be able to explain its ownership and management structure without hesitation. If the company was incorporated recently and is placing an order far larger than its filed capital or accounts would support, ask why. A new company can be a perfectly good customer, but it usually needs tighter terms until it has a payment record.

Credit reference agencies can add useful detail, particularly county court judgments, payment behaviour and credit scores. Treat the score as one input, not a verdict. A low score with a clear explanation may be manageable; a high score with inconsistent references deserves a second look.

Read the director trail

The directors are often the story behind a small company. Check whether any director has been disqualified, is linked to companies that entered insolvency, or has a pattern of resignations shortly before failure. This does not automatically disqualify a customer, but it should shape the limit, the terms and any request for a personal guarantee.

Ask who will authorise the account and who will approve orders. If the person placing the order is not a director and the company is new, confirm their authority in writing. For larger limits, a personal guarantee may be appropriate, but it should be taken with proper advice and documented clearly. A guarantee is only useful if it is enforceable and the guarantor understands what they are signing.

Use trade references as evidence, not courtesy

Trade references are most useful when they are specific. Ask for three suppliers, ideally ones that have traded with the customer for at least a year. Do not simply accept names and phone numbers; call the referees and ask structured questions. How long have they traded? What credit limit do they provide? What are their payment terms? Do invoices get paid on time, slightly late or only after chasing? Has the account ever been placed on hold?

A reference that says only that the customer is a pleasure to deal with is not evidence of payment behaviour. A referee who declines to give detail, or who turns out to be a related company, is a warning sign. If the customer cannot provide independent references, consider starting on pro-forma terms rather than declining outright.

Set a limit the business can survive

A credit limit should reflect the maximum exposure the business can carry, not the limit the customer requests. A simple starting point is to estimate monthly purchases, apply the payment terms and add a buffer for disputed invoices or seasonal peaks. For example, a customer spending 10,000 pounds a month on 30-day terms represents roughly 10,000 pounds of exposure at any one time; a 15,000 pounds limit may be sensible, while 50,000 pounds is not justified by the evidence.

Use tiered limits. A new customer with strong filings and good references might start at a modest limit and be reviewed after three clean payments. A newer company might start on pro-forma or cash-with-order terms, with credit granted after a payment history is established. A large order from a customer with thin evidence can be split: part on credit within the approved limit, part on pro-forma.

Know which signals should pause an order

Some red flags are obvious: refusal to provide a company number, pressure to skip paperwork, references that cannot be verified, or a request to invoice a different entity from the one being checked. Others are quieter: a registered office that is also an accountant's address for dozens of companies, a director who has recently resigned from several failed businesses, or accounts that are overdue at Companies House.

A pause is not a rejection. It is a prompt to ask a question, request a guarantee, reduce the limit or choose pro-forma terms. The important point is that the decision is made deliberately rather than through inertia.

Record the decision and diarise the review

Keep a short credit file: the application, company search, reference notes, limit approved, terms agreed and the reason for the decision. Record who approved it and when. Set a review date, typically after three months for a new account and annually thereafter. Monitor for late payments, changes in directors or ownership, and new county court judgments.

A credit limit is not a permanent right. It is a provisional judgement based on evidence available at the time. Reviewing it is part of managing cashflow, not an insult to the customer. For UK SMEs, the most reliable protection is a routine that is applied consistently, documented simply and revisited when the facts change.