Most bad debts are decided at the moment credit is given. A short, consistent check costs little and avoids the most common recovery problems: the wrong legal entity, a customer already in trouble, and terms that cannot be enforced.
1. Identify the legal entity
Run an SSM search. Confirm the exact registered name, registration number, type (Sdn Bhd, Bhd, sole proprietorship, partnership, LLP) and status. Invoice that entity, not a trading name. If the customer is a sole proprietor, the owner is personally liable, but bankruptcy against them needs a debt of at least RM100,000, with RM150,000 announced for 2027. If it is a company, the winding-up threshold is RM50,000. See individual vs company debtor.
2. Check credit history
A CTOS report, or a report from another registered credit agency, shows litigation, trade references and, for companies, filed financial information. Look for winding-up petitions, judgments, and patterns of late payment. Our CTOS report: what next article explains how to read one. Where the subject is an individual, follow the agency's consent requirements.
3. Read the company's filings
For a Sdn Bhd, the latest annual return and financial statements show directors, shareholders, paid-up capital and, if available, net assets. A company with minimal capital, losses and short-term liabilities exceeding assets deserves a lower limit or security.
4. Ask for references
Two trade references from existing suppliers, contacted directly, reveal how the customer actually pays. Ask: "What terms do you give, and do they pay on time?"
5. Set a limit and terms
- A credit limit linked to the checks above.
- A clear payment term and due date.
- A late-payment interest clause at a reasonable rate.
- A right to suspend supply when the account is overdue.
- For goods, a retention-of-title clause.
Have the customer sign or expressly accept your terms. Our credit management for SMEs article covers terms in more depth.
6. Take security where it is justified
For small companies, a personal guarantee from the directors gives you a second route if the company fails. For large orders, consider deposits, progress billing or a bank guarantee.
7. Review regularly
Credit decisions go stale. Re-check key customers annually, and immediately if payments slow or you hear of trouble. The minimum wage rise to RM2,000 from June 2027 (larger employers; MSMEs under RM50 million reportedly exempt) is one reason to review customers in labour-intensive sectors; see minimum wage and bad debt risk.
Why this matters more after Budget 2027
The Budget 2027 speech (PMO) announced a higher individual bankruptcy threshold, an expanded Second Chance policy and stronger automatic discharge. None of this is a reason to avoid sole traders. It is a reason to price the risk properly and secure it at the start, because the tools available after default against individuals are getting weaker. See what Budget 2027 means for creditors and our bankruptcy threshold guide.
When credit control fails
If an account goes overdue despite these checks, follow a fixed escalation timetable; see our unpaid invoice recovery checklist. Value the claim with our debt claim calculator, and hand it to our debt collection agency if in-house chasing has stalled.
Frequently asked questions
What checks should I do before giving a customer credit in Malaysia?
An SSM search to confirm the legal entity, a credit agency report such as CTOS, a review of company filings, trade references, written terms with a credit limit, and a director's guarantee for small companies.
Why does the legal entity matter?
It decides who is liable and which recovery tools apply: winding-up from RM50,000 against a company, or bankruptcy from RM100,000 against an individual, with RM150,000 announced for 2027.
Is a personal guarantee worth taking?
For small companies, yes. It gives you a claim against the director if the company cannot pay.
How often should I review customer credit?
At least annually for key accounts, and immediately when payments slow or adverse news appears.