Early Warning Signs

Business Recovery & Insolvency

author:

James Linton

Having a customer who is unable to pay can have a serious impact on your business. Knowing how to spot if any of your existing or potential customers are in financial trouble is imperative to protecting your position.

Being vigilant is important and you need to know what signs to look out for. Regularly check your clients’ accounts as any of the following ‘red flags’ could indicate that a customer may be struggling financially:

  • A change for the worse in payment patterns (taking longer than usual to pay invoices)
  • The account remains outstanding for longer or the amount is greater than usual
  • Unexpected or sudden requests for a credit limit extension
  • Smaller or less frequent orders than usual
  • Mistakes on cheques (these could indicate that they are avoiding paying or buying more time)
  • Refusing to talk to you or are putting off paying you and are offering no reason

There may be a genuine reason for any one of the above, but if these red flags start happening frequently it might be time for you to act.

So what should you do?

If your customer appears to be “juggling debts”, you need to decide whether to:

  • Simply wait to see if they pay
  • Work to get yourself to the top of their pay list. Tell them how important this invoice is to you and to your business—it’s money you’re counting on
  • Apply pressure to see if this speeds up payment
  • Instruct solicitors to pursue the debt

Whilst the last one may seem harsh, if you are owed a significant sum, the loss of which would result in serious harm to your business, do you have a choice?

The very first thing you need to do is speak to them, face to face if possible. Financial stress is a very sensitive issue and the sooner you open up the lines of communication, the quicker the matter can be resolved.

CreditMan can put you in touch with a professional who can advise you on the best route to take.

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