We have 10+ ways of spotting late payers before they cause issues for your business: changes in management, business moves, poor communication, and stalling being the main ones. This guide explains the ways you can validate your concerns about a client’s ability to pay.
Table of Contents
1. Changes of Management and Corporate Structure
Changes in company management can mean delays to payment, or even a client that starts to ghost you completely.
Building relationships with stakeholders is part of running a successful business, and any change to structure can put that at risk,
More than that, it takes a steady hand to run a stable company. Changes of management or directorship are an indication of trouble at the top.
If you see people being moved around, that could lead to everything from a lax approach to accounting,to the collapse of the whole company. In some cases, losing your main point of contact just makes it harder to get paid.
2. Change of Business Address
Companies often change offices, but if the registered head office has changed recently, or changes often, it could be a warning sign that the organisation is trying to sever its links with its old trading address.
This can happen because they are trying to avoid something (or someone), or it may mean they’re relocating to cut their overheads in a time of poor cash flow – which is bad news for clients.
3. Unanswered Calls
We always advise that you maintain telephone contact with clients, especially around invoicing. In an age of email and instant messaging, this can sound a little old-fashioned. After all, phone calls can be unwelcome on busy days.
However, a client that is willing to pay should also be willing to speak with you. If they intend to pay, they should have no problem giving you a date over the phone. If you’re a creditor and you’re having trouble getting through, you should treat this as a red flag, especially if communication patterns have chanced.
4. Bouncing or Unanswered Emails
Emails that are ignored, receive a generic automatic reply, or come back with an ‘inbox full’ or ‘address does not exist’ error are all red flags too.
If you’re having problems making contact now, what if you need to chase for payment later?
5. Habitual Late Payment
Consistently late payment can be a sign of three things:
- Poor admin processes
- Cash flow problems
- Deliberate “management” of cash flow, pushing you to the limit of your invoice terms for the benefit of their own bank balance
Some of the largest companies we’ve dealt with can be the worst offenders, essentially borrowing money from clients many times smaller.
We’ll probably never know why each client does this, but you can rest assured that, in most cases, those who pay late now will always pay late in the future.
6. Broken Promises on Late Payments
You might be prepared to forgive payments that consistently arrive a few days late, but you shouldn’t forgive a company director or accounts department that simply lies to you.
“The cheque’s in the post” and “the money should be in your account tomorrow” are fine once in a while. Everyone makes mistakes. But in an organised company with a dedicated finance department, ongoing late payments are a sign of something else. You shouldn’t give any extra time to anyone who treats you like an idiot.
7. Requests for Reissued Invoices
Never, ever, reissue an invoice to a third party. Debtors will come up with all kinds of reasons why you should do this, e.g. “it’s a holding company for finance purposes” and so on, but all it really does is to risk transferring legal responsibility for the debt away from your original client.
8. Bouncing Cheques
If you receive payment by cheque and it bounces, or the cheque is stopped, it’s a clear klaxon of a toxic cash flow scenario.
Act fast to have payment reissued, either by direct bank transfer or some other instant method, as you never know how soon the debtor might declare insolvency if things are that bad.
9. County Court Judgments
Of course a CCJ is a bad sign, but if you are already trading with a customer when they have a judgment made against them, it’s probably a good time to call in your debts with a considerable sense of urgency.
10. Mounting Problems Over Time
You’re unlikely to find an unresponsive company that’s recently changed address and management, with a CCJ against it, that wants to pay you using a stopped cheque.
But if you do, it doesn’t take a rocket scientist to recognise that if you do encounter a client like that, you probably shouldn’t supply them.
Even two or three of the above – a habitual late-payer that doesn’t answer the phone, for instance – can quickly stack up to a very high bad debt risk.
If you spot several of the warning signs from the same client, call in your debts and cut off supply, or ask for payment upfront on future orders, and you can hopefully avoid having to launch debt recovery proceedings against a firm on the brink of insolvency in the not-too-distant future.
As soon as you notice any signs of a late payer in the making, contact Safe Collections for a free review of your situation.
