Summary
You can open a trade account in ten steps: take a signed application, confirm the business on ABN Lookup or the NZBN register, run an optional credit check, call two trade references, add a guarantee where the risk needs one, set a limit and terms, then review the account after the first invoices.
- Before you approve: Application, identity and company check, credit report if you use one, trade references and a director's guarantee for new or small companies.
- At approval: Set a credit limit and payment terms, create the customer under its legal name, and send the welcome email with a copy of the signed terms.
- After approval: Start with a small limit and review it after the first invoices. Paidnice scores every customer from 0 to 100 from how they pay you.
A builder at your trade counter asks to put today's order on account at 30 days. The name on their van is a trading name, and nobody on your team knows yet which company or person will pay the invoice. ABN Lookup can tell you whether their ABN is active or cancelled.
Here is the process from first enquiry to first invoice: what to collect, what to verify, who does each step and when to review the account.
What is a trade account?
A trade account is an arrangement where a supplier lets a business customer buy now and pay later, on agreed terms and up to a credit limit.
The customer applies on the supplier's application form. The supplier carries the risk, so it decides who gets an account, how much credit and on what terms. Our guide to trade credit covers what the terms cost you.
A business trade account is different from a cash account. A cash account records the customer's details but takes payment at the time of sale. Many suppliers open a cash account first and convert it once the checks below are done.
Free: Payment reminder email templatesCopy the reminder emails for before, on and after the due date.How do you open a trade account for a customer?
To open a trade account, take a signed application, verify the business and its people, decide the limit and terms, then set the customer up in your accounting system before the first order ships.
- Application. Send your credit application form and your terms of trade, and do not ship on account until it comes back signed.
- Identity and company check. Confirm the ABN, ACN or NZBN, the legal name and the directors on the official registers.
- Credit check (optional). Order a commercial credit report for larger limits, with the applicant's written consent.
- Trade references. Contact at least two of the customer's current suppliers.
- Personal guarantee. Ask a director to guarantee the account where the company is new, small or thinly capitalised.
- Credit limit and payment terms. Set both from your credit policy and write them on the approval.
- Create the customer. Add the legal entity to Xero or QuickBooks with the limit, terms and the accounts payable email.
- Welcome and terms. Email the approval, the limit, the terms and a copy of what they signed.
- First order. Ship against the approved limit and invoice the legal entity.
- Review. Look at how the first invoices were paid and raise, keep or cut the limit.
What do you need for each step, and who does it?
Each step in the trade account process needs one input and one owner. In small teams, sales collects the application and accounts makes the decision.
| Step | What you need | Who does it | Typical tool |
|---|---|---|---|
| Application | Signed form, terms of trade | Sales or counter staff | PDF or online form |
| Identity and company check | ABN, ACN or NZBN, legal name, directors | Accounts | ABN Lookup, ASIC registers, NZBN register, NZ Companies Register |
| Credit check | Signed consent | Accounts or credit manager | Commercial credit bureau |
| Trade references | Two or three supplier contacts | Accounts | Phone or email |
| Personal guarantee | Director's signature as an individual | Director signs, accounts files it | Signed terms |
| Limit and terms | Credit policy, the checks above | Credit manager or owner | Credit policy, approval note |
| Create the customer | Legal name, AP email, limit, terms | Accounts | Xero or QuickBooks Online |
| Welcome and terms | Approval email, signed terms | Accounts or sales | |
| First order | Approved limit | Sales and dispatch | Order or invoicing system |
| Review | Payment history on the first invoices | Credit manager | Aged receivables, credit score |
Write who approves which size of limit into your credit policy, so the person who wants the sale is not the person who approves it.
How do you check the business is real in Australia and New Zealand?
In Australia, check the business on ABN Lookup and ASIC's registers. In New Zealand, use the NZBN register and the Companies Register. Both are free to search.
ABN Lookup shows whether an ABN is active or cancelled, the business type, GST status and, where available, historical trading names. You can search by ABN, ACN or name. ASIC's registers hold the company record, and ASIC charges a fee for some products, such as extracts.
In New Zealand, every business can hold a unique New Zealand Business Number. The Companies Register lets you search by company, director or shareholder, so you can confirm that the person signing is a director.
Match three things before you go further:
- The legal name. The account and every invoice go to the legal entity, not the trading name on the van.
- The status. A cancelled ABN or a company in removal is a stop.
- The signatory. The person who signs the application and the guarantee should be a current director.
Do you need a credit check to open a trade account?
A credit bureau check is optional for a trade account. Many suppliers order one only above a set limit, and rely on the registers and trade references for small accounts.
A commercial credit report can show a company's credit enquiries, defaults, court actions and directorships. In Australia and New Zealand the main bureaus include Equifax, illion and Experian, and CreditorWatch and Centrix are also widely used. Put the threshold in your policy.
Checking a director's personal credit file is a different matter. In Australia, credit reporting about individuals is regulated by Part IIIA of the Privacy Act 1988. In New Zealand, credit reporters follow the Credit Reporting Privacy Code 2020. Get written consent on the application, and ask a lawyer to word the consent clause for your terms.
How many trade references should you ask for?
Ask for two or three trade references, and contact at least two. A reference is a supplier who already gives the customer credit and can tell you how they pay.
Ask each referee how long the account has been open, the limit, the terms and whether invoices are paid on time. Our guide to trade references has the questions to ask and how to spot a reference that is a friend, not a supplier.
A new business often has no references yet. You still have options:
- Open a cash account and convert it after a few orders.
- Give a small first limit, sized to one order.
- Ask for a director's personal guarantee in place of the missing references.
When should you ask for a personal guarantee?
Ask for a director's personal guarantee when the company is new, has few assets, or wants a limit larger than its history supports.
A company is a separate legal entity, so its directors are not liable for its debts by default. A guarantee makes the director personally liable if the company does not pay. The director signs as an individual, separately from signing for the company. Our post on director personal guarantees covers when to ask and how to word it.
If your terms include a retention of title clause, look at the Personal Property Securities Register too.
In Australia, the PPSR says a supplier that does not register its retention of title arrangement is an unsecured creditor if the customer cannot pay. New Zealand runs its own PPSR. Ask a lawyer to review your guarantee and terms before you use them.
How do you set the credit limit and payment terms?
Set a new customer's credit limit large enough for their first orders and no larger, with the payment terms in your credit policy, then raise the limit once they pay on time.
Our guide on how to set a credit limit covers the methods, and the five Cs of credit cover the judgement around the number. Many suppliers offer 14 or 30 day terms on trade accounts. Write the terms on the approval so sales and accounts quote the same thing.
The first invoice tells you a lot. In Paidnice data, customers who pay their first invoice on time go on to pay 73% of their later invoices on time. If the first invoice is 1 to 14 days late, that falls to 39%. See warning signs of a late payer.
How do you set up the trade account in Xero or QuickBooks?
Create the customer under its legal name, add the accounts payable email, then record the payment terms and, in Xero, the credit limit on the contact.
In Xero, the contact's Sales defaults hold a credit limit, with an option to block new invoices when the limit is reached. QuickBooks Online has no customer credit limit field, so the limit has to live in a note or a connected tool.
Then send the welcome email with the approved limit, the payment terms, how to pay, who to call about an invoice and a copy of the signed terms. File the application, the reference notes and the guarantee against the customer so the next person can find them.
What should you review after the first invoices?
Review a new trade account after its first few invoices: whether they were paid on time, how close the balance sits to the limit, and whether to raise, keep or cut it.
Paidnice gives every customer a 0 to 100 credit score built from how they pay you. Every customer starts at 100 and loses points for paying late and for the current overdue position. You can set a credit limit for each customer in Paidnice, and it syncs with Xero's credit limit field.
When a balance goes over the limit, Paidnice can raise an escalation and assign the account to a person. Reminders go out by email and SMS before and after the due date. Stop credit is an escalation type, so a named person decides whether to put the account on credit hold.
How do you take trade account applications online?
An online trade account application lets the customer fill in and sign the form in the browser, with the reference requests and reminders sent for you.
We are building online credit applications into Paidnice. Paidnice is running a beta program for credit applications, open to anyone interested, and you can join it on the credit applications page. The applicant form has four steps in your branding: business details, directors, trade references and terms.
Trade referees are emailed a short form automatically, and each director can sign a guarantee as part of the terms. Signing records the date, the IP address and a copy of the exact terms.
Lookups of company and director details from official registers, such as the NZ Companies Office, are planned. Our guide to online credit applications for Xero covers how it fits your ledger.
💡 Paidnice insight
Most trade account problems start at step 7, when the account is created under a trading name. Invoice the legal entity on the register, and your guarantee, your terms and any later claim all point at the same name.
Frequently asked questions
How long does it take to open a trade account?
The register checks take minutes. Trade references take longest, because they depend on other suppliers replying. Many suppliers open a cash account on day one so the customer can buy while the references come back.
Can a sole trader open a trade account?
Yes. A sole trader has an ABN or NZBN but no company, so the person is the customer. You do not need a separate guarantee, because they are already personally liable. Any check of their personal credit file needs their consent.
What is the difference between a trade account and a credit account?
Most suppliers use the two names for the same thing: an account where a business buys now and pays on terms. "Trade account" is more common in Australia, New Zealand and the UK.
Should every trade account have a credit limit?
Yes. A limit caps what you can lose on one customer and gives you a clear point to review the account. Start small and raise it as the customer pays on time.
What if a trade reference does not reply?
Follow up once by phone, then ask the applicant for another supplier. Do not count a reference you could not reach. Approve on a smaller limit or a cash account until you have two answers.
Paidnice features in this article
About the editorial team
Ashley is a co-founder and lead developer of Paidnice and has built accounting software for more than 10 years. He builds the ledger connections that put reminders, late fees and payments into Xero, QuickBooks and ERPs such as NetSuite and Business Central. Before Paidnice he co-founded A2X, ecommerce accounting software for Xero and QuickBooks.
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