These 6 alarm signals point to payment default
Payment default is a serious (and sadly often fatal) problem: the sooner you get on it, the better. But prevention is still the best of all options. We know from practical experience that defaulting is often preceded by a series of signals.
Do you recognise these?
1. Changes in payment behaviour.
A frequent alarm signal: outstanding invoices are paid later and later. Lagging, as it’s called. Have you received a request for a deferral of payment? You can agree to that, subject to strict arrangements. But if late payment gradually becomes a regular pattern, this can result in defaulting.
2. The excuses pile up. ‘Our accountant is on holiday.
We’ll deal with it as soon as he/she gets back’, ‘We’re having technical problems with the system’, ‘There was a mistake with the delivery’ or even suddenly ‘Actually, we are not at all satisfied with what you have delivered’. Excuse after excuse not to pay your invoices or to pay late should set alarm bells ringing.
3. Your customer is suddenly difficult to reach.
Unanswered emails. Telephone calls that are not taken. Voicemail after voicemail. Texts with no response. If a customer does not contact you after repeated attempts, you have (probably) figured out how things stand.
4. The management is not very stable.
Is your customer’s management linked to companies with a poor record as regards payments or bankruptcies? With smaller companies especially, the past is often a good indicator for the future. Paying extra attention can never hurt.
5. There are a lot of changes at your customer’s.
Are there frequent changes in management or at the head office? Has the current financial year been extended without a well-founded explanation? Did the company file its annual financial statements on time? If not, this already raises questions. Changes in themselves are not a problem, but if this is not in line with the normal course of affairs, then it’s best to stay alert.
6. Your customer has fewer and fewer customers.
Does your customer depend on fewer and fewer customers? A problem with one of these buyers can disrupt the balance of the entire chain. So always keep your eye on the big picture.
You can monitor these alarm signals closely at your existing customers. It is not so easy when you want to identify possible defaulters among your prospects. Nevertheless, this is very important, because for lasting growth after a crisis you need a reliable and lasting stock of new customers.