Credit risk
How to vet a new customer before giving credit
Giving credit means trusting a customer to pay later. A quick check on the legal entity before you agree terms lowers the chance you are left chasing money.
Updated 2026-06-20 · 6 min read
Confirm who you are extending credit to
Credit is extended to a legal entity, so confirm the entity first. The name on the credit application should match a registered company with a current status. If it does not, sort that out before agreeing terms.
Set terms to match the risk
A new customer with a short history is not the same risk as a long established one. You can still trade with them, but you might start with smaller limits, shorter terms or part payment up front, then extend trust as they prove reliable.
- Match the credit limit to what you can afford to lose if it goes wrong.
- Use clear written terms and confirm who is responsible for payment.
- Review the limit as the relationship develops.
Watch for change
A customer who was healthy when you signed them can run into trouble later. Monitoring the entity means a change in status reaches you, which is exactly when you want to tighten terms rather than ship more on credit.
Questions and answers
What is the cheapest way to lower credit risk?
Confirm the legal entity, set the first limit to an amount you could absorb if unpaid, and watch for changes. None of that is expensive, and it prevents the worst outcomes.
Check a company before you commit
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