How to credit check a new customer (for free!)

Most people have heard of credit checks - even if what you immediately think of is the background check the bank runs when you apply for a credit card, loan or mortgage.

In principle, securing a credit report from Experian on a new customer is the same process, even if you are not lending them money; any goods or services provided upfront, to be paid for later, still represent a line of credit, and a risk to you if the customer fails to pay.

But how do you know who will pay in full and on time, and who is a higher credit risk?

Here are some of the ways you can protect yourself, without necessarily having to pay out to have a credit check conducted by a third-party credit reference agency.


DueDil - short for 'due diligence' - is a website that allows you to search Companies House records, so you can find out who's involved with a company, their track record as a company director, and importantly, the financials of the firm.

Basic membership is free and gives you access to a wealth of information including company financials, director details, and a handy list of 'red flag' events, such as if anybody petitions for your client's company to be dissolved.

Usefully, the site also displays graphs showing how a company's finances have changed over time, giving you an at-a-glance method of deciding whether the firm is on the up, or heading into the red.

Possibly the most useful tool DueDil provide is the ability to look at the current and previous directorships. This means that you can conduct further research on the directors of your potential customer for anything untoward.

Specifically it allows you the opportunity to see if the director has been involved in other companies and how these companies have fared. Be very wary of any director with a history of short lived limited companies, as this is an indicator that the potential customer may be operating what we call a “phoenix company”.

Phoenix companies may well be perfectly legal, however in our experience any director that has sunk one company only to start another the very next day will have scant regard for the impact this has on their commercial creditors.

You can read more on Phoenix Companies on the action fraud site here and Wikipedia here.

Google (or your search engine of choice)

When it comes to investigating a potential credit customer, do not overlook the humble search engine, as you may be surprised what you can find out about a company and its directors with a simple search. Firstly, check the company name for any record of complaint or fraud. Other creditors will often take to the web to warn off potential customers about bad debtors.

If this doesn’t return any unfavourable results, be sure to check the director’s names and the names of any previous companies you found in your earlier DueDil search. Again, be wary of dealing with any business that has unfavourable reviews or remarks especially if these relate to insolvency or non payment. Whilst we don’t generally recommend placing any stock in rumour and gossip, creditors posting on the internet about unpaid invoices should be seen as a red flag.

Finally, don’t forget the humble address. It is always worth looking up your customer’s premises and seeing what, if anything, you can find. Be especially on guard if the address doesn’t tally with your expectations. Whilst it is perfectly reasonable to expect a freelancer or contractor to trade from a home address, it is less likely that a small or medium sized business will trade from a residential address.

If your company supplies physical, high value goods, you must treat any delivery to a residential address as highly suspect. Fraudsters will often apply for credit accounts from small suppliers, then simply sell the items “out the back door” at a discount and never pay the supplier anything.

Red flags

Finally, a checklist (by no means exhaustive) of things you should consider as 'red flags' if you find any evidence of them in your search.

  • New companies which have not yet filed any accounts at all should always be considered as high risk.
  • Any evidence of County Court Judgments on a file should be considered as high risk.
  • Evidence of a director having been involved in a large number of previous, now-dissolved companies is also high risk.
  • Offshore companies, especially those run from tax havens, must always be treated as high risk.
  • Companies with repeated bad reviews on the internet, especially if these reviews relate to fraud or non payment, must again, always be treated as high risk.

The internet has made a vast quantity of information quickly and freely available - if you are in business in your own right, it is only sensible to make use of this information in order to protect your interests.

If you do have a new customer that appears high risk, you should do everything in your power to mitigate the risks to your business. Make sure your company keeps a close eye on payment performance and levels of credit and if possible take payment in advance.

If you are new to business we have an exclusive offer for you, get 99 Experian SME credit reports for just £99 plus £20 worth of free marketing data. Click here to find out more.

Over 150 Years Of Industry Experience

Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.

Image "Google Classic: Please Allow 30 Days for your Search Results (Original artist unknown) #Google" by flickr user Duncan Hull is licensed under CC BY 2.0

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