How to check a retailer before supplying on credit

Last reviewed: 7 October 2026 · Pharma Mithra

Your legal duty: sell only to licensed buyers

A wholesale licence is not only a permission to sell; it comes with conditions. The conditions of a Form 20B licence say that no sale may be made to a person who does not hold the requisite licence to sell, stock, exhibit or distribute the drug. Form 21B says the same of sales for resale, and the Form 20G licence for Schedule X drugs has the same condition for Schedule X. The exceptions are limited: government purchasers; hospitals and medical, educational or research institutions; Registered Medical Practitioners buying to supply their own patients; and, under some licences, certain manufacturers who use the drug in their products.

The Rules then make you prove it on paper. Every wholesale cash or credit memo must show the buyer's name, address and sale licence number (or, for the excepted buyers, the name and address of the institution or doctor), the drug, quantity, batch number and manufacturer, and the signature of your competent person. You must keep copies for three years from the date of sale and produce them to a Drug Inspector on demand. A licence number on your invoice that turns out to be wrong, cancelled or someone else's is your problem, not just the buyer's.

Checks before you open an account

1. Get every licence number and the state. Ask for the numbers of all the drug licences the buyer holds at the premises you will deliver to, in writing, with the issuing state. A typical pharmacy holds a Form 20 and a Form 21 licence; record each number separately.
2. Check they are in force. Verify each number with the issuing state's records, not from a photocopy. The licence must not be suspended or cancelled, and must not have lapsed for an unpaid retention fee. See expired, suspended or cancelled licences.
3. Match the firm. The licensed firm should be the business placing the order, the one named on the purchase order, and the one whose bank account will pay you. A licence cannot be lent to another firm, however closely related.
4. Match the delivery address. The Rules require a separate licence for each place where drugs are sold or stocked for sale. Deliver only to the licensed premises. A request to drop goods at a house, another shop or a godown with no licence of its own is a red flag.
5. Match the licence to the order. See the section below.
6. Match the GSTIN. The GST registration should be active and belong to the same business, at the same address, as the drug licence. Our GSTIN guide shows how to read and match one.
7. Keep a dated record. File what you checked, the result and the date with the customer's account. If a question comes up later, that record shows you checked before you supplied.

Does the buyer's licence cover what it orders?

The form numbers on a licence decide what the holder may buy for sale. Check the order against them:

• Form 20 only: retail sale of drugs other than those in Schedules C, C(1) and X. It does not cover Schedule C products such as vaccines, sera and insulin, nor Schedule C(1), which includes antibiotics and vitamins in forms that are not injected.
• Form 21: retail sale of Schedule C and C(1) drugs, excluding Schedule X.
• Forms 20A and 21A (restricted): valid only for the drugs named in the licence. Supply nothing else.
• Schedule X drugs: the buyer needs a Form 20F licence (retail) or Form 20G (wholesale), and Schedule X sales have extra record-keeping of their own. See Schedule H, H1 and X rules.
• Buying to resell to other dealers: needs a wholesale licence (Form 20B or 21B). A retail-only pharmacy ordering wholesale quantities to pass on to others is a reason to ask questions.

For the full list, see drug licence forms 20, 21, 20B and 21B.

Credit checks beyond the licence

A licence in force tells you the buyer may lawfully buy; it says nothing about whether it will pay. The checks below are ordinary business practice, not legal requirements:

• Ask how long the shop has traded at that address, and for trade references.
• Take payment from a bank account in the licensed firm's own name.
• Start with a modest limit and raise it as the account pays on time.
• Agree credit terms in writing, signed by the proprietor or a partner.

Watch for ownership changes

If a partner joins or leaves, or the shop is sold, the licence conditions require the licensing authority to be told. The old licence stays valid for at most three months after the change unless a fresh licence is taken in the name of the reconstituted firm. A change of owner is also a change in who owes you money, so review the account at the same time.

Re-check, and not just once

The licensing authority can suspend or cancel a licence at any time for a breach of the Act, the Rules or the licence conditions. Re-check your customers' licences from time to time, and always:

• before a large or unusual order;
• when the customer's name, address, partners or GSTIN change;
• when payments start to slip; and
• before you restart supply to an account that has been dormant.

This guide is general information about Indian drug and tax law for businesses, not legal advice. Rules and procedures can differ by state; your state drug control department or GST office has the final word on any individual case.