Should You Check a Customer's Credit Before Offering Net-30 Terms?

Yes, in most cases. If you ship goods or do the work now and get paid in 30 days, you’re lending that customer money, and it’s worth a few minutes and a few dollars to check customer credit before net 30 terms go out. The exception is small orders where a loss wouldn’t hurt.

The harder questions are when the check is worth the effort, what to look at, and how to turn what you see into an actual limit instead of a gut call.

Net-30 is a loan. Price it like one.

Most small businesses don’t think of terms as lending. You’ve got an invoice, a due date and a friendly customer. But the economics are the same as a short-term, unsecured, interest-free loan. If the customer doesn’t pay, you don’t just lose the margin. You lose the cost of everything you shipped.

The math is what changes minds. Say you sell commercial cleaning supplies at a 25% gross margin. A new customer orders $12,000 on net 30 and never pays. To earn back that $12,000 hole, you need $48,000 in new sales ($12,000 ÷ 0.25). That’s four more orders the same size, with nothing going wrong on any of them.

And slow payment is common even among good customers. In the Federal Reserve’s 2023 Report on Employer Firms, close to half of small employer firms said they’d had trouble paying operating expenses or dealing with uneven cash flow. Your customers are small businesses too. When their cash gets tight, your invoice is one of the things that waits.

When a credit check is worth it (and when it isn’t)

We’re not going to tell you to check every account. That’s overkill, and it puts off customers who just want to buy a pallet of paper towels. A simple rule of thumb works better: check when the possible loss is bigger than you’d shrug off.

Usually worth a check:

• A first order on terms above an amount that would actually sting. For a lot of shops that’s somewhere between $2,500 and $5,000, but you know your margins.
• Recurring terms where the balance can stack up: weekly deliveries, monthly service contracts, open accounts.
• A customer asking to raise their limit, stretch to net 60, or skip a deposit.
• Anyone who wants terms on the first contact and pushes hard for speed. Urgency plus a large first order is a classic fraud pattern.

Probably not worth it:

• Small orders you’d write off without much pain.
• Customers who pay by card or ACH at order time.
• Long-standing accounts with years of clean payment history in your own books. Your own ledger beats any report.

Who you’re really extending credit to

The right check depends on what kind of business the customer is, because the law and the data both treat them differently.

Sole proprietors and new single-owner businesses. The business and the person are the same, legally and financially. The owner’s personal credit is the business’s credit. A personal credit check is the most useful signal you can get, and since they’re applying to you for terms, there’s a credit transaction involving them.

Small LLCs and corporations. The business is a separate legal entity, but in practice a three-person company’s ability to pay is tied tightly to the owner. Commercial credit bureaus may have a file on the company, often thin for young or small firms. Many suppliers ask the owner to sign a personal guarantee and include consent to check the owner’s personal credit. That turns a guess into real information.

Larger, established companies. Personal credit is mostly irrelevant here. Use trade references, a commercial credit report, and their payment behavior with you.

Keep the check legal (it’s easier than it sounds)

Personal credit reports are covered by the Fair Credit Reporting Act, and you need a permissible purpose for each one. For trade terms, you’re usually covered two ways at once: the person applied to you for credit, and (if you set things up right) they gave you written permission. Our explainer on permissible purpose under the FCRA has the full list.

The practical setup is a short credit application. Business name, owner name, phone, the amount and terms requested, and a consent line the owner signs or checks. Something like:

“I authorize [Supplier] to obtain my personal credit report and score from TransUnion to evaluate this request for trade credit. I understand this is a soft inquiry and won’t affect my credit score.”

Keep the signed application. That’s your proof. If you ever wonder whether a particular check is allowed, our post on whether it’s legal to look up someone’s credit goes through the gray areas.

One thing that surprises people: if you turn down a trade credit request, federal rules still apply. Under Regulation B, 12 CFR 1002.9(a)(3), you must tell the applicant what you decided within a reasonable time (orally or in writing), and if they ask for your reasons in writing within 60 days, you have to give them a written statement. If a personal credit report played any part, the FCRA adds its own adverse action notice naming the bureau. None of this is hard. It’s just easy to forget. (Usual disclaimer: this is a plain-English overview, not legal advice.)

How to check customer credit: net 30 accounts in five steps

This is a process a two-person office can actually run.

1. Verify the phone number belongs to the person applying

Fraud on trade accounts often starts with an invented identity: a real-sounding company name, a fresh email domain, a VoIP number. Before you look at credit, look at the phone. Is it a mobile or landline tied to a real carrier, or a throwaway VoIP line? Does the name on the line match the owner who signed? Our post on mobile, landline and VoIP numbers explains why line type matters.

2. Pull the owner’s score and credit profile

With consent in hand, a soft-pull lookup gives you the owner’s name, current address, their FICO® Score 4 and a summary of their credit profile: total debt, credit usage, payment track record and the main factors holding the score back. It doesn’t touch their score, and it takes seconds.

3. Read payment history before the score

A score is a summary. For trade credit, the most important piece underneath it is whether this person pays their bills on time. FICO weights payment history as the largest factor in its scores, about 35% for the general population. A 700 with a recent 90-day late on a business card tells a different story than a 700 driven by a short credit history.

Also look at credit usage. Someone carrying 85% of their available credit is stretched, and stretched customers pay suppliers last. Our guide to credit reports vs. credit scores shows what’s in each.

4. Turn what you see into a limit, not just a yes or no

The best use of a credit check isn’t approve or deny. It’s deciding how much. A tier sheet keeps you consistent and keeps emotion out of it. The sample below is a starting point; the numbers are illustrations, not industry standards.

Whatever tiers you pick, write them down and apply them the same way to everyone. Consistency is good for cash flow and good for fair lending.

5. Re-check when the relationship changes

A credit check at onboarding is a snapshot. When an existing customer asks for a bigger limit, starts paying late, or their order size jumps, a fresh review makes sense. Reviewing an existing account to confirm the customer still meets its terms is a permissible purpose on its own, and a fresh signed OK is better still. Because every lookup is a soft pull, re-checking doesn’t cost the customer anything on their score. If you’re unsure how a soft check differs from a hard one, read soft pull vs. hard pull.

Things that work better than a credit check alone

Credit data is one input. These cost nothing and catch a lot.

• A deposit on the first order. Even 25% changes the math on a bad account.
• Starting small and stepping up. Three on-time invoices at $3,000 tell you more than any report.
• Two trade references, actually called. Ask “how many days do they usually take to pay?” rather than “are they good customers?”
• A clear late-fee clause in your terms, agreed in writing up front.
• Watching your own aging report weekly. The first 10 days past due is when a call works best.

What this looks like on an ordinary Tuesday

A new customer, Marisol Vega, emails from a landscaping company asking for net-30 on a $7,800 irrigation order. Her company is an LLC, about 18 months old. You send your one-page credit application with the personal guarantee and consent line. She signs it on her phone ten minutes later.

You look up the number she gave you, (555) 555-0187. It’s a mobile line, the caller ID name matches, the fraud score is low. Her FICO 4 is 712 with on-time history and credit usage around 30%. That’s tier two on your sheet: net 30, limit of $5,000 for the first 90 days. You offer $5,000 on terms and ask for the remaining $2,800 at order. She takes it. Three months and four on-time invoices later, you raise her to your standard limit.

Nothing dramatic. No one got turned down, no one got burned, and the decision took about fifteen minutes. If you want to see where the score itself comes from, our why FICO Score 4 page explains the model, and the compliance page sums up the rules in a few paragraphs.