Red Flags to Watch Out For When a Customer Can’t Pay Off Debt

Red Flags to Watch Out For When a Customer Can't Pay Off Debt

Here’s an interesting fact for you: every single day that passes by without your client paying an overdue invoice, the chances of them ever paying you back diminishes. It can become increasingly bothersome to always have to chase after clients with unpaid dues. There are red flags to help you decide what you should do when you face this kind of a situation.

Take Note of These Red Flags

The company is downsizing

More often than not when a company begins to lay off its employees it usually means there have been financial troubles within the institution. Letting of employees means that they are
trying to keep the company afloat while still attempting to run it. After all, less employees mean there are less people to pay.

It is also worth noting that when a key employee of the company resigns, it could potentially be another red flag. For someone who has been loyal to the company to suddenly take flight, there are obviously issues that can’t be resolved.

The company is up for sale

A business owner usually lets go of their company for many reasons but the most common driving force for them to sell is so that they can still somehow get their investment back from a failing venture. Anyone who has invested their money, time, and energy onto a business has expectations of being rewarded by means of profit. Try to find out more about why the company is up for sale especially when it’s happening so suddenly.

Consistently paying late

Getting tired of having to follow up unpaid invoices just so the client can pay up? This is a red flag because it could possibly mean that the business is facing cash flow problems. If this is the case, you might have heard the following excuses:

  • Suddenly your invoice to them goes missing
  • They give absurd reasons why they shouldn’t pay yet, often laying the blame on you
  • They are stuck in the middle of another transaction and they are also waiting to get paid so they can pay you
  • They don’t pay in full
  • They are waiting for a bank loan

Don’t take these excuses lightly and it is best to investigate further to find out if it is indeed true or it might be a more serious issue.

Personal issues can make an impact

Smaller businesses usually just have one or two key figures running the company. If it’s not the owner themselves, they might have a manager who is in charge of helping run the business. It’s quite natural that personal issues will somehow get in the way of how things are being managed on their side. They might be experiencing life altering situations such as a divorce, a serious illness, or the death of an immediate family member or spouse.

Such events can make it hard to contact the person you are transacting with and eventually affect the way they are handling overdue bills. Treat this kind of situation with tact but also be consistent with reminding them about overdue invoices.

There is a shake up in your customer’s industry

It is wise to be in the loop about where the bulk of your client’s revenue comes from. There might be some shifts or changes within the industry that could be the cause for paying invoices late. Try to get to know who their biggest customers are too. If this client of theirs has suddenly gone bankrupt, downsized its team, or there’s a change in ownership, this would most likely affect how your client transacts with you.

It doesn’t hurt to know more about other industries as this will also be a good indicator of future trends and how stable it truly is over time.



What To Do When You See Red Flags

Now that you know the red flags, how should you deal with the situation at hand?

Learn more about their real reason for paying late

Don’t be hasty about making decisions. Learn the truth first before you decide how to go about things. Nowadays we communicate through email. Take things further and give them a call. Talk to a few of the employees and try to find out what the atmosphere is like. If you’re not too far away from their office, drop by for a quick chat. See if what you found out on the phone is consistent from person to person.

If someone had resigned, try to find out why they left. This might change your perspective about the situation.

Reduce Credit Limit and Payment Terms

If it has been confirmed that there are serious issues causing the delay in payment, don’t be passive about it and wait if things will become better. It is important that you begin protecting your interests.

  •  Reduce their credit limit so they won’t have to incur more debt
  •  Change your payment terms
  •  Require them to pay upfront starting now and until they can prove that they are in a more stable position

Get a Professional Collection Company to Help

Sometimes you can’t do it all. When the client is increasingly becoming more of a liability and continue showing red flags, contact JMA Credit Control for a more direct approach about debt collection. This will take a load off your shoulders. Bringing debt collectors into the picture increases the chances of debt being paid full in no time at all.

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