Ten Signs that a Customer May be in Serious Financial Trouble

There are a number of early warning signs that indicate that a customer is in serious financial trouble.  Being aware of these signals can help prevent bad debt losses.

1. When a customer stops discounting your invoices, or stops paying your invoice on time, or
2. When a customer’s payment pattern worsens dramatically, and when you place the account on credit hold the company offers to pay COD for future shipments but can offer no commitments relating to how soon the past due balance will be paid.
3. If a customer, who has not done so before, starts making and then breaking payment commitments.  When asked for an explanation, the debtor indicates that funds earmarked for you were instead sent to more critical suppliers.
4. If the debtor will not take your calls, and does not return your messages.
5. When or more checks are returned due to Insufficient Funds.
6. You learn that key employees begin leaving the company.
7. Your accounts payable contact hints at serious problems, but refuses to provide specific information.
8. The debtor contacts you to discuss an extended payment plan, or a payment moratorium.
9. The debtor hires a consultant, or work-out specialist to deal with the company’s creditors.
10. The debtor’s financial statements show significant deterioration in the Balance Sheet and/or the Income Statement and/or the Statement of Cash Flows.

© 2009 by Michael C. Dennis.  All Rights Reserved.