How to spot a late payment before it happens
When a customer misses a payment deadline your cash flow is at risk. So, it’s important to deal with it as soon as possible to protect your business.
But is there a way to spot a potential late payment before it occurs? We certainly think so.
Here we look at some of the signs that a customer might miss an upcoming payment deadline.
1. First warning signs
The earliest warning signs go right back to when you’re taking the order, before any credit has been offered.
A good way to spot these initial signs is to use an account opening form. This should ask for all necessary business information including their full trading name, legal status, registration number, address and the key contact details of the management and contacts responsible for accounts payable.
Does the contact information look suspicious? If they have an unprofessional or spammy email address or if they provide a post-office box and mobile number for contact information, then you should question if the customer is legit.
Another warning sign is when a customer refuses to sign a contract. This is an important tool which can be used to your advantage if you decide to take legal action, so always make sure that a contract is signed before you provide the goods or services.
Although it is not an automatic red flag, if the customer doesn’t have an accounts payable department you should be wary. Often, in these instances a single person is responsible for a number of different jobs and therefore paying bills may not be their top priority.
You might also want to be wary of customers who demand to pay by cheque. Whilst this doesn’t necessarily mean that they won’t pay you it does give the customer all the power and room for stalling payment, factoring in the postal service and time it takes for cheques to clear.
If you are suspicious you might want to request full or partial payment upfront to limit the risks to your cash flow.
2. Strange client behaviour
Whilst it’s good to get to know your customers on paper through methods such as account opening forms, it’s also good practice to get to know their normal behaviours through building a relationship.
Creating a rapport with your customers is a good way of building customer loyalty and keeping your invoices front of mind.
It will also allow you to spot any sudden changes in their behaviour that could be a sign of trouble. This can range from their telephone manner to the tone of their emails.
Key quirks to look out for are clients which are disorganised, indecisive, extremely over-critical or hesitant.
These behaviours can be a sign of trouble and, at the very least, you should proceed with caution.
3. History of poor payment
It’s likely that customers with a history of poor payment will continue to pay poorly in the future. Therefore, getting to know your customers before offering credit terms is a good way of reducing the risk they pose to your business.
Performing a credit check will reveal if they have a bad credit rating or any CCJs filed against them.
You could also look at their filed accounts, which could give you insight into their financial health. Late filings in particular could be a sign of trouble.
As well as this, the new payment reporting regulations require all large businesses to report on their payment practices. Accessing this information could reveal if they have a history of missing payment deadlines.
If any of these sources reveal that your customer is a risk you should consider taking full or partial payment upfront.
4. Staff turnover
The employees of a business often a reveal a lot about the company without ever even saying anything.
As mentioned above, strange behaviours can be a sign of a trouble. But what’s perhaps more revealing is when employees disappear altogether.
If a company is struggling, their staff may decide to seek other employment. This could be because they’re worried about their job security or to escape an unpleasant working environment. If there is a high staff turnover this should start alarm bells.
Another sign that a company isn’t performing well is when a number of top-level executives resign over a relatively short period of time.
Don’t be afraid to ask questions when an employee leaves suddenly and make sure that you always keep up-to-date with contacts at the company so that you always know the most relevant person to contact for payment.
Without the right contact information you are likely to experience delays in payment whilst emails and calls are bounced around the business.
5. Lack of communication
If your calls are going unanswered and you’ve left multiple messages or emails without a reply, it might be a sign that your customer is avoiding you and is unable to pay.
Likewise, if you’ve sent the customer a letter which hasn’t been signed for or it’s been returned, it could be a sign that they’re avoiding you or aren’t at the address that they provided.
The moment that you realise your customer is becoming harder to reach you should investigate to make sure they’re not avoiding you so they don’t have to pay you.
If the customer disappears altogether debtor tracing services exist which could help you locate even the most evasive customers.
6. Sudden changes to the business
Another sign that your customer might not be able to make an upcoming payment deadline is sudden changes to the business.
Whether it’s changes in buying patterns, sudden stock or asset sales or even reduced service levels any sudden changes should start alarm bells.
Whilst reduced service is a clear sign of trouble, it’s also important to be wary of the opposite happening as rapid business expansion could also be an indicator that difficulties lie ahead.
Over-trading can cause serious problems as businesses struggle to fund the additional requirements of large orders.
Keep a watchful eye on industry news too. This could highlight if there are any challenges throughout the industry that could impact on your client and their ability to pay you.
7. Gut feeling!
It could be a natural instinct, but more likely it’s a skill gained from experience. The more you work in credit control the easier it is to spot when your customers are likely to give you the run around.
If you have a gut feeling that a customer is going to pay late you’re probably right. Learn to trust your instincts and, at the very least, treat these customers with caution.
Fed up with late payment? As a leading provider of credit control and debt collection services we could help. Contact us today on 0800 9774848 to see what we could do for your business.