How to credit check a customer (NZ)

Most unpaid invoices are not bad luck. They are a customer who was never good for the money, taken on because checking felt awkward or slow. Here's how to check a New Zealand business in about ten minutes, what the free registers tell you, and when a deposit beats a credit file.

Start with the free checks

Two public registers answer most of the question, cost nothing, and take a few minutes each.

The Companies Office

Search the business name on the Companies Register. What to look at:

• Status. Registered is fine. In liquidation, in receivership or in the process of removal is a stop sign.
• Incorporation date. A company registered three weeks ago is not disqualifying, but it means there is no track record to check.
• Directors, and their other companies. This is the valuable part. Click a director's name and you see everything else they have run — including companies that were liquidated. A director with a trail of failed entities is the single strongest warning you will get for free.
• Registered office and address history. Frequent changes, or an address that is only an accountant's office, is worth a second thought.
• Annual return filing. Overdue returns suggest a business that has stopped doing its admin, which usually includes paying suppliers.

Note the exact legal name and company number while you are there. You will need both on your terms of trade, and "Smith Builders" is rarely the name that is actually contracting with you.

The PPSR

The Personal Property Securities Register shows security interests registered over a business's assets. A search is a couple of dollars. A long list of financiers with security over plant, vehicles and stock tells you the business is heavily borrowed, and that those lenders rank ahead of you if it fails. If you are supplying goods on credit, the PPSR is also where you register your own retention-of-title claim — worth advice if that is your trade.

When to pay for a credit report

Centrix and Equifax sell business credit reports in New Zealand, from roughly the price of a decent lunch for a single check. A report adds payment behaviour, defaults, court judgments and a credit score — things the free registers do not show.

It is worth paying when the job is large enough that losing it would hurt, when you are extending credit over months rather than weeks, or when the free checks turned up something you want explained. For a $600 job, the report costs more attention than the risk deserves.

For a customer trading as a sole trader or partnership rather than a company, there is no Companies Office entry to read, so a paid check or a deposit is doing more of the work.

The checks that cost nothing and get skipped

1. Ask for trade references and actually ring them. Two suppliers who have invoiced them before. Ask one question: do they pay on time? The pause before the answer tells you as much as the answer.
2. Look at how they are behaving with you. Vague about the legal entity, reluctant to sign terms, pushing for a start before paperwork, unusually keen on a big first order — each of those is data.
3. Check they are GST registered if they claim to be, and that the NZBN matches the name you were given.
4. Search the name. Ten seconds. Disputes with other suppliers are often public.

When a deposit beats a credit check

A credit check tells you what a customer did before. A deposit tells you what they will do now, and it is faster, free and works on customers with no credit history at all — new companies, sole traders, homeowners.

Take the deposit route when the job is small enough that a report is not worth the time, when the customer is a private individual rather than a business, or when the check came back thin rather than bad. Ask for enough to cover your materials and the first stretch of labour, so a customer who vanishes leaves you inconvenienced rather than out of pocket. How to write that into your terms is in what payment terms should you use.

If a customer will not pay a deposit and will not pass a check, that is not a difficult negotiation. It is the answer.

Checking is not the same as chasing

Vetting shrinks the pile of customers who were never going to pay. It does nothing about the much larger group who can pay and simply have not — the wrong inbox, an unraised query, an invoice nobody followed up. That is where most overdue money actually sits, and it is covered in how to chase an overdue invoice. If a customer has already gone past the point of following up, see what to do when a customer won't pay.

The follow-up itself is the job Gary does — it reads your Xero invoices, finds what has gone overdue, and phones the customers you have approved, so a good customer who forgot does not quietly turn into a bad debt.

This guide is general information, not legal or financial advice.

Common questions

How do I credit check a company in New Zealand?

Start free: search the Companies Office for status, directors and their other companies, then search the PPSR for security interests over the business's assets. If the job is large, buy a credit report from Centrix or Equifax for payment behaviour, defaults and judgments. Ring two trade references either way.

Is a credit check free in New Zealand?

The Companies Office search is free and a PPSR search costs a couple of dollars. A full business credit report from Centrix or Equifax is paid, from around the price of a decent lunch for a one-off check.

Can I credit check a sole trader?

Not through the Companies Office — there is no company to look up. You can check the NZBN, ring trade references, and buy a report from a credit bureau, though the file will usually be thinner. For sole traders a deposit does more work than a check.

What if a new customer won't pay a deposit?

Treat it as a result, not an obstacle. A customer who will not fund the materials for their own job is telling you they are short of cash or do not intend to pay in full. Either way you have learnt it before you are out of pocket.

Should I credit check every customer?

No. Match the effort to what you would lose: free register checks on any new business customer, a paid report when the job is big or the credit runs over months, and a deposit instead of either on small jobs and private customers.