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How to tell If A Client is Going Under

Every company had debtors, people who owe them money, the last thing we want is for a client to go under or be deemed unable to pay. If a client is going under we should be able to identify if they are and be able to prepare a plan to tackle this. What are the warning signs of a client going under?

Warning Signs of A Business Going Under

  • Cutting dividends.
    Business’s that cut their dividends are experiencing tough times. They may just be experiencing a rough patch but if they are looking to boost revenue one of the first things they do is to decrease or cut their dividend altogether.
  • Replacing the CFO.
    Companies that notice they are in trouble and want to turn it around generally replace the person in charge of the finances. This could mean the Chief Financial Officer or it could be the Head Accountant. Whoever it is, they are often replaced in the hope that the company can take a new turn and recoup their losses.
  • Promoting from within to key positions.
    When a company is in trouble some key posts are abandoned, and the company promotes from within the company rather than advertises for a replacement to take over the role. They try to hire internally and for a lot less money than the position is generally worth, the company is trying to reduce overheads to match a reduced income stream. The upside of this is that the people generally feel a little better about the company rewarding a person with a promotion, and the new manager knows the company, hopefully this will bring increased productivity and revenue.
  • Salaries are frozen.
    The one biggest expense a company has is its employees, generally during a time of recession a company will freeze their employees pay to save money. However, if they do it during a time when the economy is booming it could be a sign that they are in trouble.
  • Lender being blamed.
    If you are trying to collect on an account owed and the company blames you for the company’s bad position. This is a clear warning sign that the company’s management is unwilling to accept responsibility for their current condition and fix it.

If you have a client that is exhibiting all these signs, then it might be a good idea to try and balance the accounts with them rather than setting up more debt. The goal being to keep your company from losing too much if the company folds.

Warning Signs of An Individual not Being Able to Pay

  • They don’t know how much they owe.
    If the individual is unaware of how much they owe, or keeps requesting an account balance check. It may mean that they are struggling, and may need more time to pay or need more time to pay off the amount owed.
  • They often pay late.
    If an individual regularly pays the money that they owe you late, it could indicate that they are having difficulty with their finances.
  • They have to take out loans to pay you.
    If an individual takes out a loan to make a payment, or enters into more debt to pay off a debt it could indicate that they are either unaware of their financial position or that they are experiencing financial trouble.

What to Do?

When you are facing a client who owes you money and may not be in a financial position to pay you in the near future it might be time to consider a few things

  • Start with a helpful attitude.
    Treat the late payment or non-payment as a problem to be solved together. It could have just been an oversight so don’t get angry with them. It is better to be paid later than not at all.
  • Offer a discount for early payments.
    Offering your clients a cheaper rate if they pay on time. Will make your clients happier and more likely to pay you on time or early if they can see that the cost to them is better if they pay faster. Be firm in the application of these policies, or they will stretch out new discounts on old terms.
  • Revise terms to payment in advance.
    If possible have the client pay in advance for the services or products before you supply them. It will change the dynamic of the relationship, and you will have your money so you don’t have to wait for it and risk losing both money and the client. If the client is unable to pay up front, then they can’t have your products or services.  
  • Consider cancellation.
    Chasing after a small amount might not be worth the effort. If the sum is very small, it might be worth considering cancellation of the debt rather than going to a debt collection agency which might cost you more money.  
  • Where possible automate the payments.
    There are many apps and programs that will automatically send out invoices for you. If your clients receive an invoice with a link to pay via a credit card or PayPal account, they will more likely pay as soon as they receive the account.
  • Debt collectors.
    Debt collectors can help you chase down clients that have not responded to an early invoice. If a client has paid late frequently and the amount owed is beginning to stack up with interest or just extra charges, then a debt collector might be able to negotiate with them or just nudge them to pay on time. Just having a debt collector calling could be more than enough to spur your client into paying the account.

Conclusion

The signs that a client is having difficulty paying are easy to spot, with a little practice you can spot those that are in trouble and offer them solutions before they go under altogether.

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