Do you know how to spot the warning signs that your customer is about to go bust so you can safeguard against the consequences?
As a business, you rely on your customers and their ability to pay on time. This is at the heart of your positive cash flow which, as we all know, is key for any company. If one of your customers does not pay an invoice, this can be a serious threat to your financial stability.
To give you an example of the threat to business growth because of nonpayment, if you lose 22,420 USD from a non-payment, and you have a profit margin of 5%, you would need to sell an extra 448,406 USD to replace that profit. There are ways to protect your finances by reducing this risk. This includes knowing your customer and monitoring changes in their behavior. That way you can prepare a buffer, protecting your business against nonpayment and leaving you able to focus on growth.
Ten Signs Of Customer Non-Payment
1. Are There Erratic Or Late Payments?
Is your customer failing to follow your credit agreement or trying to change payment terms? Are there erratic payments that are becoming increasingly late. If this is the case, it’s likely they are suffering from cash flow issues.
2. Is Your Customer Taking Questionable Credit Decisions?
Did your customer just land a huge sale with a dubious buyer? If your client is not managing their credit risk , you could be caught in the downstream impact.
3. Are There New Financial Processes?
Is your customer in the process of securing new financing or changing banks? There’s a possibility they are doing this because their current bank may not lend them additional funds.
4. Is There An Increase In Credit Checks?
If your customer is experiencing a constant stream of checks from credit providers, they may be having trouble paying its current creditors, or is desperate to cover cash flow or recover from financial losses.
5. Do You Hear Excuses, Excuses, Excuses?
Non-stop excuses from your customers about late payments of invoices are a tell-tale sign of trouble.
6. Are There Management Changes?
Large and unusual changes in management could signal problems. Look out for changes that are out of line with past history, especially if they bring on a restructuring officer.
7. Are There Changes In Buying Behavior?
If the customer starts to purchase erratically after a consistent pattern or increases purchases dramatically in a short time frame, you may want to ask about the reason behind such a change.
8. Does Your Customer Keep Asking For Extensions?
Have there been unexpected or more frequent requests to extend payment? A one-off extension can be normal, but if this becomes more of a pattern, it could be putting off an inevitable non-payment.
9. Is Your Customer Not Returning Calls?
If the phone keeps ringing when you call, this is a sign of problems. If a customer doesn't contact you after repeated attempts, you should start to take action.
10. Are There Structural Changes?
If one of your customers is selling off large parts of their business, starts to scale back or cancel growth plans, or is pivoting dramatically they could be in financial trouble.
It may be that some of these changes are legitimate but knowing the warning signs is the best way to prepare for and manage the risk. Don’t bury your head in the sand, being aware of the issue is a proactive approach which helps to manage and reduce this risk meaning you protect your business against non-payment and late invoices, and can focus on your future.
Protect Your Business Against Non-Payment with Trade Credit Insurance
Trade credit insurance can protect your business against non-payment such changing fortunes of your customers, so their loss doesn’t have to be your loss. Euler Hermes can also provide risk assessment services to alert you to potential problems with clients.