How to Check a Philippine Customer's Credit Before You Give Them Terms

How to run a Philippines company background credit check: four layers, in order

Work through four layers: legal existence, financial capacity, market reputation, and payment structure. Fail any of the first three and you do not offer terms; the fourth is your insurance for the times you judge it wrong. The whole exercise takes one to two weeks and costs far less than a single bad debt.

The layers exist because each answers a different question. Layer one asks who they are. Layer two asks how big they are. Layer three asks how they have treated other suppliers. Layer four asks what you still hold if they stop paying. Most people stop after finding a website, a trade-show photo and a plausible company name — and then treat the check as complete. There are three full layers between a company existing and a company paying you on time.

One mindset correction first. Asking a Philippine company for its registration documents is not an insult and will not cost you the deal. SEC filings, mayor's permits and bank certifications are the same papers every local company hands over when it bids for a contract, applies for a loan or opens a corporate account. A customer who refuses is telling you something useful.

Layer 1: SEC company verification — does the company legally exist and is it still in good standing?

Layer one answers one question: is this a real, currently valid legal entity? Start by establishing what kind of entity you are dealing with, because the records live in different places.

• Corporation (name ends in Inc. or Corp.) — registered with the Securities and Exchange Commission. Verify the exact corporate name, the SEC registration number, the date of incorporation and the current status.
• Partnership — also registered with the SEC.
• Sole proprietorship — registered only with the Department of Trade and Industry as a business name. Behind it is one individual with no separation between business and personal assets. That cuts both ways: you can pursue the owner personally, but there are no audited financials to review.

Then check three more things: a current mayor's permit and barangay clearance, the BIR certificate of registration, and whether the customer can issue a compliant official receipt. The last one is the most diagnostic — a customer who cannot issue a proper OR or sales invoice usually has tax problems already. For where to search and how to request certified copies, see how to run a Philippine SEC company search.

One red flag people miss: the SEC suspends and revokes the registration of companies that fail to file their annual reports. A name that appears in the database with a revoked or suspended status means the company has not done basic compliance in years. Do not expect it to handle a payment dispute well either.

Two practical notes on this layer. Registered names in the Philippines are often close variants of each other, so match the exact registered name against the name on the quotation, the bank account and the delivery address — a mismatch between the contracting entity and the paying entity is one of the most common ways a supplier ends up with no one to sue. And check the incorporation date: a company formed three months before it approached you asking for open account terms is a different risk from one that has traded for fifteen years, even if both documents look equally official.

Layer 2: Can they actually pay? Three numbers in the General Information Sheet (GIS) and audited financials

The hardest evidence of whether a Philippine company has money is what it files with the SEC itself: the General Information Sheet and the audited financial statements. The GIS shows shareholders, directors, paid-up capital and registered address. The AFS shows scale and solvency. Both can be requested through the SEC's paid document-request channel for a per-document fee; current pricing and turnaround are on the SEC website.

When the AFS arrives, read three things before you read anything else:

• Paid-up capital and net worth. Philippine SMEs are frequently capitalised very thinly. If net worth is smaller than a single order, you are effectively asking an entity smaller than your invoice to guarantee your receivable.
• The current ratio (current assets divided by current liabilities). Below 1 means short-term assets do not cover short-term obligations, and your invoice sits behind the bank, the landlord and payroll.
• The trend in accounts payable and short-term borrowings. Two consecutive years of sharp increases without matching revenue growth usually means the company is funding itself by stretching suppliers. You would be the next supplier.

Two caveats. Under-reporting revenue for tax reasons is common among Philippine SMEs, so good numbers may be understated but bad numbers are usually genuinely bad. And audited statements lag — what you receive this year typically covers the previous fiscal year. Layer two tells you the order of magnitude, never today's cash position.

If the customer will not release financial statements, there is a reasonable middle path. Ask for a bank certification, the latest BIR-stamped income tax return cover page, and a list of three trade references. Any two of those three give you enough to size the business. A customer who declines all three while asking for sixty-day terms on a first order has effectively answered the question for you.

Layer 3: What the market knows — trade references, bank certification and a site visit

Layer three is where you talk to people. It is closer to current reality than any financial statement and it costs almost nothing. Four moves:

• Ask for three trade references. Request three other suppliers who already extend the customer credit, then call them and ask the only questions that matter: what terms did you agree, what is the actual average days to payment, has a payment ever bounced. Whether the customer will give you the list is itself the test.
• Ask for a bank certification. Issued by the customer's bank, it confirms how long the account has existed and the general nature of the relationship. It will not disclose a balance, but it proves the company is not brand new to the banking system.
• Ask the industry. Philippine business circles are small, and the Chinese-Filipino business community especially so. Two or three calls to others in the same supply chain will usually tell you more, and faster, than any purchased report.
• Go and look. Visit the registered address and the warehouse or store. Is there inventory, are there staff, is the space owned or rented, what scale of rent does it imply? The site-visit checklist used for supplier audits works just as well on customers.

If the customer also wants exclusivity or a joint venture, go deeper — see how to vet a Philippine local partner. Paid commercial credit reports do exist through local and international bureaus, but coverage of smaller buyers is uneven and pricing varies by provider. Never let a purchased report substitute for the three layers above.

How much credit should I extend, and how long should the terms be?

The answer is not yes or no. Grade customers into four tiers, and let the tier set both a credit ceiling and a term length. This framework can be copied directly into a sales policy:

• Tier A — SEC status current, net worth comfortably larger than a single order, three positive trade references. Longer terms permitted, credit ceiling set around one month of ordering volume, anything above that still prepaid.
• Tier B — documents complete but financials thin, or only one or two references obtained. Shorten terms one step, halve the Tier A ceiling, and require the first two orders to be prepaid so a payment record exists.
• Tier C — sole proprietorship, less than two years old, or no obtainable financial statements. Prepayment or cash on delivery only, no terms.
• Tier D — irregular SEC status, refuses all references, or already has one late payment on record. Do not trade on credit.

Three disciplines matter more than the tiers themselves. Write the start date of the credit period into the contract — bill of lading date and delivery-acceptance date can be two weeks apart. Treat the ceiling as a hard system block, not a judgement call for the salesperson on the ground. And re-grade every six months: Philippine cash flow is strongly seasonal, with Christmas stocking, the school-opening season and the rainy-season construction slowdown all moving buyers in and out of tightness.

One more mechanism is worth building in from the start: a written credit application form that the customer signs before the first shipment. It should capture the exact registered name, the SEC or DTI number, the registered and delivery addresses, the authorised signatories, the trade references, and an acknowledgement of your terms including the start date of the credit period. It takes ten minutes to complete and becomes the single most useful document you own if the relationship later goes wrong.

Red flags that mean you should not offer credit terms at all

Any two of these together and the customer goes to prepayment only.

• No pushback at all on price, but relentless negotiation on payment terms. They want the financing, not the goods.
• Requests to ship to a third-party address, or a consignee that is not the entity on the contract.
• Payment from a personal account rather than a corporate account, or a proposal to settle in cryptocurrency. Philippine over-the-counter crypto has its own hazards — see the risks of USDT-to-peso OTC trades.
• Post-dated cheques offered in place of a wire transfer. Cheques are normal in Philippine commerce, but a bounced cheque puts you into a separate and slow recovery process.
• A first order that is large, on terms, and demands exclusivity all at once.
• Changing contact persons, free webmail addresses, and a registered address that is a virtual office.
• The moment you ask for SEC filings or trade references, you are told that business here runs on trust.

That last one deserves emphasis: refusal to hand over routine registration documents is itself the strongest signal you will get. Separately, if a customer or supplier suddenly emails that their bank details have changed, treat it as business email compromise until proven otherwise. Call back on the number you already had — never confirm new banking details inside the same email thread.

Payment structure beats due diligence: four ways to cap your B2B payment risk

Even when all three layers come back clean, structure the transaction so that the worst case is a loss you can absorb. In order of value for effort:

• Staged payments. A deposit, a payment against a copy of the bill of lading, and only the balance on terms. This shrinks the pure credit exposure to a fraction of the order value and is far more productive than arguing about whether terms exist at all.
• Letters of credit or documentary collection instead of open account. On larger orders, an L/C or D/P costs bank fees that are trivial next to a write-off. For cross-border payment channels generally, see how to move money between China and the Philippines safely.
• Retention of title plus a personal guarantee. State in the contract that title does not pass until payment is received in full, and on larger limits ask the shareholders for a personal guarantee. That single clause is what stops the individual behind a thinly capitalised company from walking away.
• Export credit insurance. Chinese exporters can transfer buyer-default risk through short-term export credit insurance; the premium buys certainty. Cover terms and rates depend on current underwriting policy.

The contract itself also has to work in the Philippines. Get the dispute-resolution clause, the address for service or the governing language wrong and a real dispute stalls on procedure before it reaches the merits — see how China–Philippines contract disputes actually play out. If you want the whole screening and risk framework designed once and applied across your customer base, our market-entry advisers can build it with you.

You already shipped on credit and they are not paying: managing the bad debt risk

Start in the first week of delinquency, not the third month. Send a statement of account and a formal collection letter around day 7, escalate to a lawyer's demand letter around day 30, and only then move to barangay conciliation or small claims. The full timeline is in what to do when a Philippine customer stops paying.

Do three things in parallel. Stop all further shipments immediately — continuing to ship doubles the loss. Move every communication into writing, because formal emails and letters carry far more evidentiary weight than chat messages. And find out whether other creditors are already chasing; if peers in the industry are also collecting, your position in the queue determines how much is left.

For smaller amounts, small claims is one of the few Philippine procedures that is relatively fast and does not require a lawyer. The monetary ceiling is set by Supreme Court rules and has been revised over time, so check the current threshold — the process is covered in the Philippine small claims guide. One closing lesson: the real cost of a bad debt is not the invoice, it is that it teaches your sales team that skipping the check is survivable. After the first loss, install the grading system rather than blaming the salesperson.

Finally, treat the first late payment as data rather than an accident. In practice, a customer who pays fifteen days late once will usually pay late again, and the correct response is to re-grade rather than to renegotiate the relationship. Tighten the ceiling, shorten the term, and require the arrears to be cleared before the next release. Doing that early is far less damaging to the relationship than doing it after you are three shipments deep and cannot afford to stop.