If you’ve ever extended credit to a business and been burned, chances
are the issue started long before the invoice went unpaid. It started
when you didn’t truly know who your customer was.

“Know your customer” is a compliance term with real operational
weight. It is one of the most practical risk management steps any
business can take, and it starts with one question:

What type of entity are you actually dealing
with?

The legal structure of the business you’re trading with determines
who is liable when things go wrong, and how recoverable the debt will
be.

Limited Companies are separate legal entities. The
company itself is liable for its debts; individual directors and
shareholders are not. They are governed by legislation and must satisfy
solvency tests. Always capture the correct legal name and
registration number. Trading names alone are insufficient.

Sole Traders are individuals operating under their
own name or a trading name. They are personally liable for the
debts of the business. Have their full legal name and date of birth on
file.

Partnerships work similarly to sole traders.
Liability is typically joint and several across all partners, meaning
you could pursue any one partner for the full debt. Capture the full
names and dates of birth of every partner.

Trusts are often set up to protect assets or achieve
tax efficiencies. You can secure against the individuals who sign the
credit application. Recovery from a trust that refuses to pay is
difficult and unpredictable. Tread carefully.

What happens when a
customer changes?

This catches more businesses than you’d expect. A name change with
the same registration number leaves your existing terms intact. A new
registration number means a new entity: fresh contract, fresh credit
checks, new account reference. Do not skip this step.

Do your homework upfront

Run a credit check on every new customer. Use publicly available
registries and credit reporting services to verify the details provided.
If your customer is an individual, secure proper privacy consent before
pulling their information.

A few minutes of due diligence upfront can save months of chasing
debt later.

The bottom line

Knowing your customer means knowing your risk: the legal structure
you’re dealing with, the right details captured from day one, and the
alertness to act when things change. The work is unglamorous. It is the
foundation that protects your cash flow and your business.

Next time you onboard a new customer, ask yourself: do I really
know who I’m trading with?