Identifying clients who don't pay their debts
One of the biggest mistakes made by new business owners and entrepreneurs is a lack of due diligence when taking on new clients. It's vital that you identify potential clients who have a poor history of paying their debts, just as much as identifying existing clients who are facing financial troubles.
Being a new entrepreneur and small business owner in a new market place can have it's challenges. One of the biggest problems faced is that clients end up costing you more money than they make you, or even worse, your good reputation.
A lack of awareness and due diligence is often the cause of early business losses, so it is important that you have a process to identify potential new clients, or even existing clients who may become troublesome and not pay their debts on time.
The following is a brief guide of warning signs to keep an eye open for.
Warning signs for new clients
When engaging with new clients, ensure you and your business perform due diligence, not all clients are honest and truthful. Therefore take all the steps to cover your business and build a good working relationship with your new clients.
The biggest key warning sign when taking on any new client is when they place really large orders and offer to pay later. Unfortunately, many entrepreneurs and new business owners jump for joy when they take on a new client who puts in a large order, but more experienced business owners may see this as an alarm bell. It is not unknown for new clients to place a big order and then not pay their invoices.
The best way to prevent this situation from occurring is to ask for cash before or on delivery for the first six to twelve months, then you can either give them credit or continue with this strategy if it suits your business model.
Warning signs for existing clients
Just because an existing client has always paid in full and on time, doesn't mean that this situation won't change in the future. The following are warning signs that a client is under financial stress, requiring you to address the issue sooner, rather than later.
Late payments: When a client has always paid on time, but suddenly starts to pay their bills late or offer part payments, the situation can rapidly escalate out of hand. You might also notice that they pay their bills using a number of different credit cards or try to renegotiate terms, even breaking these terms on occasion. If any of these situations develop, it's sensible to give the client a call to discuss the issue and if possible, arrange for the existing debts to be repaid over a suitable time frame. It might be best to consider cash on delivery for any further orders from this client, but if you can't come to an equitable course of action, you may need to let them go and proceed with a debt collector.
Lack of communications: When clients are slow to respond to your calls or other forms of communication regarding late payments or they continually give excuses, it's time to reassess the situation. A sudden financial crisis can hit any small business, but if they are open and honest and willing to work with you, then hopefully the situation can be resolved to the benefit of all concerned. On the other hand, if your client continues to evade the issue or ceases communications altogether, then you will have no other recourse than to hand them over to debt collectors.
To ensure your business is protected in the event a client is unable to pay their invoices or declares bankruptcy, you need to invest in the right type of insurance cover. To select the best type of insurance cover for your business, talk to me today.
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