Which are the warning signs of a defaulter?
Changes in payment behaviour
A frequent alarm signal: outstanding invoices are paid later and later. Have you received a request for a deferral of payment? You can agree to that, subject to strict arrangements. But if late payment gradually becomes a regular pattern, this can result in defaulting.
‘Our accountant is on holiday’, We are having technical problems with the system’, ‘There was a mistake with the delivery’ or even suddenly ‘We are not satisfied with what you have delivered’. Excuse after excuse not to pay your invoices or to pay late should set alarm bells ringing.
Unanswered emails. Phone calls are not taken. Voicemail after voicemail. Texts with no response. If a customer does not contact you after repeated attempts, you have figured out how things stand.
The management is not very stable
Is your customer’s management linked to companies with a poor record as regards payments or bankruptcies? With smaller companies especially, the past is often a good indicator for the future. Paying extra attention can never hurt.
Are there frequent changes in management or at the head office? Has the current financial year been extended without a well-founded explanation? Did the company not file its annual financial statements on time? If yes, it’s best to stay alert.
Does your customer depend on fewer and fewer customers? A problem with one of these buyers can disrupt the balance of the entire chain. So always keep your eye on the big picture.
What do you have to do when a customer doesn’t pay his invoice?
Use an alarm system
Send a reminder
Contact your customer
Work with a collection agency
Alarm systems are digital tools that allow you to track your incoming and outgoing invoices. Do not use this reminder system for when it is too late: set an alert a few days before the due date.
The same goes for your communication towards customers: there is no need to wait until the deadline has expired. On the contrary, a reminder just before the due date is more sympathetic than a first formal notice after the due date. Moreover, this increases your chances of being paid.
If no payment is forthcoming, you should react as quickly as possible. Contact your customer and try to agree on a solution. To maintain a good commercial relationship with your customer, an amicable settlement is often the way to go.
If the water between you and your customer has become too deep, work with a professional debt collection agency. A debt collection agency makes an objective assessment and has plenty of experience with difficult negotiations.
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How to avoid defaulters?
You first need to collect the right information about your customers. Then you need to be able to detect the signals that things are likely to go wrong. We can help you assess the financial situation of a company. We have deep and up-to-date information on over 83 million companies around the world. By using this information, you can decide with confidence on the terms on which you want to do business with them.
What factors define the creditworthiness of a company?
How much of the total capital is debt and how much is equity? The higher share of equity there is, the better the solvency of a company.
Does a company have sufficient cash to refund short-term debts? The more liquidity there is, the better the solvency of a company.
- Turnover and profit
This information also defines the creditworthiness of a company. The more profit there is, the better the solvency of company.
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How to protect your company against defaulters?
Protecting your company has never been so important than now. Especially in this crisis period, you are never safe from the default of payment or the insolvency of one of your customers. Very often bad payments and insolvencies lead to a snowball effect. This creates risks for the cash flow and profitability of your business. A large unpaid invoice can jeopardise the growth of your business or eventually lead you to insolvency.