Before granting credit to a customer, it is important to undertake some basic credit checks.

A 2011 Experian survey found that seven out of ten small businesses in the UK don't bother to carry out customer credit checks, but they are simple and cheap to do online and can save you a lot of money in the long run.

• A simple Google search on your customer's company name should bring up any references about their activities and reputation.


• Search Companies House - If your customer is a limited company, are they who they say they are? Do the details they've provided match up with those filed at Companies House?


• If your customer is a sole trader or partnership, try to ascertain the full names and private addresses before trading begins.


• Get a credit report. A credit report contains useful information on a business's trading, credit and financial history. It also provides a credit rating and limit, and gives you details on any other companies owned by the directors. Forum members can access credit reports for just £6.


• Keep an eye on customers with business monitoring, this will tell you if there are any changes in a customer's key business data.

Before supplying goods and/or services, you need to make sure that you are aware of the conditions to which you are committing your company.

Make sure that your standard terms and conditions of credit (i.e. '30 days from date of invoice') are clearly stated. This should usually be on the reverse of any quotations with a clear message on the front that they will apply to any order resulting in acceptance of the quotation. Submitting your terms and conditions with an invoice is usually too late in the event of a dispute.

Also, remind your customers at this opportunity of the Late Payment of Commercial Debts (Interest) Act, which gives you the right to apply interest to overdue accounts.

You should include a 'retention of title' clause in your contracts so you can recover products which are identifiable as yours from customers for which payment has not been made.

If you don't have a credit policy in place that dictates how much credit you'll extend and who to, you could be putting your business in a risky position.

Your credit policy should determine the total amount of credit your firm will allow overall (usually 10% of your net worth or 20% of working capital) and then how much credit you will supply to customers based on their perceived risk - the lower the risk, the more credit can be allowed.