Spotting Problem Clients: Early Warning Signs

Late payments and unpaid invoices can severely impact businesses of all sizes, creating a ripple effect throughout the entire supply chain. While there’s no fool-proof method to predict which clients will become delinquent, recognising certain warning signs can help businesses mitigate potential losses. Proactive measures, such as requesting upfront payment or conducting credit checks, can be implemented when these red flags appear.

Inconsistent Communication

Open communication is essential for a healthy business relationship. A client who is responsive and communicative is generally a good sign. However, a sudden decline in communication, especially regarding invoices and payments, should raise concerns.

Points of concern:

  • Unanswered messages regarding invoices
  • Demanding your time and ignoring invoice-based questions
  • Vague responses regarding payment

Refusing Upfront Payment

Whilst some businesses have standard post-delivery payment terms, a general refusal to consider upfront payment from new or existing clients warrants your attention.

Points of concern:

  • Resistance to any form of upfront payment
  • Reluctance to discuss initial payment terms

Price Haggling Beyond Reason

Negotiation is a normal part of any business, but excessive price haggling can be a sign of deeper financial issues. Clients who tend to aggressively push for discounts or offers may be struggling to afford your services in the first place.

Points of concern:

  • Constant back-and-forth on pricing
  • Negative comments about your rates
  • Persistent requests for special deals and discounts

Recurring Requests for Payment Extensions

Occasional requests for payment extensions are understandable, especially if accompanied by a clear explanation, and an alternative solution. However, frequent requests for extensions, particularly when coupled with excuses and broken promises, are a significant red flag

Points of concern:

  • Repeated requests for additional time without valid reasoning
  • Excuses relating to cash flow and bank issues
  • Broken promises regarding payment dates

Signs of Financial Instability

Changes in a client’s financial situation can impact their ability to pay. Keeping an eye out for signs of financial distress can help you anticipate potential problems. Consider implementing credit checks or company monitoring services for ongoing assessment.

Points of concern

  • Reports of downsizing, restructuring and layoffs
  • Reports of industry-wide financial difficulties
  • Frequent staff turnover

In summary

By being aware of these different behaviours and taking appropriate action, businesses can minimise the risk of late payments and protect their own financial stability. Proactive communication, clear payment terms, and regular monitoring of client financial health are key to maintaining a healthy cash flow.

What’s next?

Franklin James Credit Management (FJCM) can help businesses where customers are not paying on time. With our outsourced credit control services, which includes regular company monitoring and credit checks, FJCM can support the cash flow of your business from £35 to £45 per hour depending on the number of hours you require.

 

Start Your 3-Month Trial Today.

 

 

 

Disclaimer: The information provided in this article represents the opinions and insights of Franklin James Credit Management Limited (FJCM). It is intended for informational purposes only and should not be considered as professional financial or legal advice. Business owners and individuals seeking financial guidance should consult with qualified professionals to address their specific financial needs and circumstances. FJCM disclaims any liability for decisions made based on the content of this article.