Can I Shorten Terms for Risky Customers?

Reading the risk

Some customers plainly carry more risk than others, and it pays to notice the signs early: brand-new accounts with no history with you, businesses in sectors that are under obvious pressure, customers who hesitate or stall over a simple credit application, or anyone whose trade references come back lukewarm. None of these on its own is proof that a customer will not pay, but where several line up together they justify a more cautious approach to terms.

Tailoring terms to risk in this way is completely normal commercial practice, and it is perfectly legal. You are free to offer different terms to different customers based on their individual circumstances and history, as long as each customer actually agrees to the terms that apply to them. Charging a riskier customer shorter terms is not unfair — it is simply prudent.

Stricter terms that fit

Once you have decided a customer is higher risk, you have a range of tools to limit your exposure, from a gentle adjustment to full payment upfront. The right one depends on how much risk you are carrying and how large the order is.

Shorter period

Net 7 instead of net 14 or 30 keeps the window you are exposed for as brief as possible.

Deposit

25 to 50 per cent upfront with the balance on completion, which suits project work especially well.

Payment upfront

For the riskiest customers or a first order, payment in full before you supply removes the credit risk entirely.

Match the tool to the risk rather than applying the strictest option to everyone. A small first order might only need net 7, while a large project for an unproven customer clearly warrants a substantial deposit before you commit any time or materials.

Agree it before you trade

Whatever terms you decide on, the rule is the same as for any customer: agree them in writing before the work starts. State the term clearly in your quote, get the customer's written acceptance of that quote, and then repeat the term on the invoice itself. Terms imposed after you have already supplied are far harder to enforce if the customer disputes them, and a risky customer is precisely the one most likely to do so.

For higher-risk customers, a credit application is especially worthwhile rather than optional. It surfaces the exact legal entity you are dealing with, gives you trade references you can actually check, and — where the customer is a company with few assets — provides the opportunity to ask for a director's guarantee before you commit. All of that information is far more useful gathered before the first order than after a payment has gone wrong.

Tightening an existing account

Shortening terms for a customer who is already on your books is different from setting terms for a new one, because you are changing an existing arrangement. That makes it a contract variation: you generally need to give reasonable written notice and apply the change only from a future date, or tie the tighter terms to the next order or a renewed agreement. For the full mechanics of doing this properly, see can I change a customer's payment terms.

And if a risky customer slides into outright non-payment despite the shorter terms you have put in place, the sensible move is to shift to recovery rather than chasing them endlessly yourself. You can refer the debt to Merion on a commission-only basis and let a specialist pursue it while you get on with the business.