5 Essential Warning Signs to Impending Customer/Client Debt

Article from http://www.accountingweb.co.uk.

The financial health of your customers can have a major impact on your own business finances. Without being secure in the knowledge that customers have access to the credit needed to pay you on time, you leave yourself open to your own credit difficulties. By constant assessment of the financial health of your clients, you can stay on top of their finances and so, your own.

However, if you begin to see the following 5 warning signs in your customer, it is time to tighten up your credit policy.

1. Change in Ownership

Ownership changes can be a key sign that a business is having financial issues; if a business is successful, why would the owners sell up? Be concerned if you call your customer and are referred to an unfamiliar person, or the business is using a different name. Name changes in particular signal credit problems and are generally a quick fix for companies struggling with their bills. As standard, check the job title of the person you are referring to and if you notice any lots of staff changes it might eb time to dig further into their credit history.

2. Deteriroration of Paying Habits

If your customers are frequest spenders, habits in their payment process will probably stand out. Delays in payment, changes to their payroll team as well as your constant at the company could indicate credit issues. This will be equally noticeable if you have implemented a process to track paying habits. Infrequent or new customer credit difficulties are harder to spot so increased vigilance is imperative.

3. Changes in Customer Orders

If a customer has placed the same order for years and suddenly decreases their order, it could be a signal that they are suffering financially. Prompt investigation may prove this to be no more than a change in needs but it could also be the first signal of credit problems. Initially, talk to your customer to find out why their order has changed before it becomes a problem.

4. Broken Promises

If your customer is making promises regarding deadlines and amounts they will be able to pass to you and when, generally their credit is in a particularly dire state. When promises are broken immediate action is required. Promises are typically made when things have already reached the “late” stage of payment, so be vigilant and act as soon as deadlines are missed.

5. Unresponsive customers

When your customer begins avoiding your calls or not returning your calls, it’s a major red flag. By this stage, your customer is likely to have passed the point of no return. Most likely they are reaching the crux of their financial problems and increasing attempts to contact them are unlikely to end fruitfully. Really, poor credit should have been picked up beyond this stage, but if you do find yourself with an unresponsive client, now is the time for legal action.

In summary, one unreturned call is no big deal, but broken promises or unannounced changes of ownership most certainly are. Stay in touch, watch for signs and when you see red flags, immediately implement firm measures to bring the account current. To stay out of trouble, be aware of your customers actions and keep an eye out for warning signs.