Spotting Customers in Trouble
It goes without saying that your customers are the life blood of your business. It’s important to ensure you are aware if they are in trouble, especially if they are a large customer.
It’s not easy to spot a struggling business and you may get it wrong. Many companies have blips or changes which don’t affect their ability to meet their obligations – every business has up’s and downs.
But there are some warning signs to look out for:
Payments slowing down
This is hard to spot and it isn’t always something to be concerned about.
Look at your customers over the last 12 months, have they gradually been paying later and later?
All companies are managing their cash flow so don’t panic, but a change in how quickly payments arrive could show a company struggling with cash flow.
Sudden or unusual increase in orders
Extra sales isn’t always a positive thing!
It may sound bizarre but it’s not unusual for a struggling company to order lots of stock prior to administration or in anticipation of going on stop and if a large order raises alarm bells with you, look at the pattern of previous orders, see if payments are slowing down.
Job losses
Restructuring isn’t uncommon and shouldn’t always be viewed with suspicion.
But large scale job losses or your contact confiding their concerns to you should get your interest – are these job losses sign of a struggling company?
It’s not usual for employees to build up a relationship with their counterparts working for their customers – pay attention to what you are being told and don’t be afraid to ask your customers.
Management / Directors leaving
Senior management or Directors leaving the business can be an indicator of concern especially if they are not being replaced. Again, it’s also a good idea to pay attention to what you’re being told by the contacts within the your customer’s business.
Coupled with the other signs mentioned this should make you consider paying more attention as there may have been a pattern forming.
Late filing of statutory accounts
This warning sign on its own should set off alarm bells.
Late filing of accounts can indicate a company with issues and you should certainly be looking at your terms and making sure everything is as tight as you can get it. As a benefit of using Waters & Gate for any of our services offered we offer reviewing your terms and conditions as standard, as well as your dunning letters.
Asking for extended terms
On their own, this isn’t necessarily an issue – many companies look for extended terms to improve their cash flow. However coupled with other issues this can be a sign of a struggling company. As with all of the other points made if there’s a cause for concern there’ll be a pattern that has led to this.
CCJ’s
A recent County Court Judgment especially unsatisfied does indicate a business unable to meet their financial obligations. Don’t be afraid to raise this with your customer if the CCJ is large or your customer is new. Your priority is ultimately protecting yourself.
Failed payment promises
Small businesses occasionally make promises that don’t work out. With poor cash flow and often erratic sales it’s not uncommon though should be a concern.
But medium to large businesses that promise payment that doesn’t arrive should be red flagged.
Website / phone down
Not paying their web or phone bill should be a red flag to any supplier. Of course, phones go down and websites crash, but coupled with other warning signs could indicate a business struggling to pay their bills as often paying for their websites isn’t the priority.
Don’t ignore
Often companies ignore the warning signs, think their customer is too big to fail or too established. However, it’s clear the evidence over the last few years shows this is simply not true. Don’t be embarrassed to follow up on the warning signs. Your business is your priority.
Whether we talk about Carillion, BHS, Phones 4 U, Comet, Blockbuster, Jessops, Toys R Us, Poundworld the list goes on.
On their own, none of the previous signs can be called conclusive evidence of an issue, but two or more together should prompt further investigation
Where we think there are concerns, it’s our responsibility to act
- Raise the issue
- Consider lowering terms or getting prepayment
- Ensure that collection activity is prompt
- Go and meet the customer if appropriate
Recently published figures (10/07/2018) show that small firms are owed over £14.9BN… don’t contribute to that statistic!
Don’t ignore your instincts – Take action!
Read our guide on Good credit management starts on day one here.
Waters & Gate offer both commercial and consumer debt collection. The service is based on a no win, no fee policy.
For free advice on any of the issues raised in this article please call Waters & Gate the credit management and debt recovery specialists, 029 2126 2130.