Extending Credit to Startups
New businesses have no track record — and that is exactly the problem. Here is how to win their trade without taking an outsized risk.
What you'll learn
- Why startups are harder to assess than established firms
- What evidence you can rely on when there is no history
- Structures that let you trade with startups safely
- How to grow with a startup as it proves itself
6 min read
Why startups are hard to assess
Almost everything you normally use to judge a customer is missing for a startup. There is no payment record, no trade references that mean much, often no financials worth the name, and a high statistical chance the business simply will not survive its early years. Extending generous credit to a brand-new entity is therefore one of the riskier things a supplier can do.
Yet startups can be excellent customers — growing fast, loyal to suppliers who backed them early, and potentially valuable for years. The answer is not to refuse them, but to trade in a way that contains the risk while the relationship is unproven. You want the upside of being an early supplier without betting an amount you could not afford to lose on an unknown that may not last.
What evidence you can use
With little history, lean on what does exist:
- the founders' background and any track record in prior businesses;
- a company search for the directors, including any past failures;
- whether the business is funded or backed, and by whom;
- the entity type and whether a director's guarantee is available.
A director who has built and run successful businesses before is a very different prospect from a first-timer. The people often matter more than the entity when the entity itself has no history.
Structures that contain the risk
Rather than a large unsecured limit, use structures that let you trade while limiting exposure. Deposits or upfront part-payment reduce the unpaid balance. Cash on delivery for early orders removes credit risk entirely. A small staged limit lets the startup begin building a record without putting much at stake. A director's guarantee gives you recourse to a person if the company fails.
These are not signs of distrust — they are how prudent suppliers work with any unproven customer. For the staging approach in detail, see staged credit limits for new customers, and consider a guarantee per requesting a director's guarantee. This is general information, not legal advice.
Growing with a startup
The point of starting cautiously is to leave room to grow. As the startup pays cleanly and survives its first months, step the limit up and relax the conditions — earning a reputation as the supplier who supported them early without ever exposing yourself recklessly. Reliable young businesses appreciate a supplier who grows with them.
Keep watching, because startups can change fast in either direction. If a startup you backed does fail despite sensible precautions, your contained exposure limits the damage, and Merion can recover any balance compliantly and commission-only across QLD, VIC, NSW, and the ACT — contact us to discuss the account.
Key takeaways
- Startups lack the history that normal credit assessment relies on.
- Lean on the founders' background and a director search where there is no trading record.
- Use deposits, cash on delivery, staged limits, and guarantees to contain risk.
- Grow the limit and relax conditions as the startup proves itself.
Frequently asked questions
Should I refuse credit to startups entirely?
No — trade with them using deposits, staged limits, or guarantees so you capture the upside while containing the risk.
How do I assess a business with no history?
Focus on the founders' track record, a director search, how the business is funded, and whether a guarantee is available.
What's the safest way to start with a startup?
Cash on delivery or a small staged limit for early orders, increasing it only as a clean payment record builds.
Knowledge is good. Getting paid is better.
Merion's team recovers what you're owed — commission-only, no upfront fee.