Do you know how to spot the warning signs that your customer is about to go bust so you can safeguard against the consequences?

As a business, you rely on your customers and their ability to pay on time. This is at the heart of your positive cash flow which, as we all know, is key for any company. If one of your customers does not pay an invoice, this can be a serious threat to your financial stability.

To give you an example of the threat to business growth because of nonpayment, if you lose $22,420 from a non-payment, and you have a profit margin of 5%, you would need to sell an extra $448,406 to replace that profit. There are ways to protect your finances by reducing this risk. This includes knowing your customer and monitoring changes in their behavior. That way you can prepare a buffer, protecting your business against overdue payment or non-payment and leaving you able to focus on growth.

Ten Warning Signs Of Customer Non-Payment

1. Are There Erratic Or Late Payments?

Is your customer trying to change payment terms or failing to comply with your credit agreement? It's likely that they may be suffering from a volatile cash flow.

2. Is Your Customer Making Questionable Credit Decisions?

Did your customer just land an abnormally large sale with a suspect buyer? Be wary of downstream risk. If your customer is not practicing prudent credit management, its mistakes could become your own.

3. Are There New Financial Processes?

Is your customer in the process of securingnew financing or changing banks? They may be doing this because their current bank won't lend them additional funds, so it may be wise to treat them with caution.

4. Do You Hear Excuses, Excuses, Excuses?

Non-stop excuses from your customer for not delivering payments are generally a tell-tale sign that trouble is on the way.

5. Is There An Increase In Credit Checks?

If your customer is experiencing a constant stream of checks from credit insurers or providers it may signify that the company is having trouble paying its current creditors or is desperate for credit to cover cash flow needs or recover from financial losses.

6. Are There Changes in Buying Behavior? 

If the customer starts to purchase erratically after a consistent pattern or increases its purchases dramatically in a short timeframe, you may want to inquire about the reasons behind the behavior change.

7. Are There Changes In Public Perception?

Have you noticed an increase in bad press or public complaints on social media and review sites? If a customer shows signs of skimping on their service and/or products, it could signal trouble.

8. Does Your Customer Keep Asking For Extensions?

Have you been getting unexpected or more frequent requests to extend payment? a one-off extension may be normal but if a new pattern emerges, it may be putting off an inevitable non-payment.

9. Are There Structural Changes to the Customer’s Business?

Broad-sweeping or unusual changes in management could signal a problem on the horizon. Pay attention to changes that don't seem in line with past history -- especially if they bring on a restructuring officer.

10. Is Your Customer Not Returing Calls?

No answer? That’s a problem. If a customer won't contact you after repeated attempts to reach them, it's time to take action.

Why should you take notice of these red flags?

Keeping a close eye on your customer relationships will help you realize when these warning signs begin to add up or become a pattern. Realizing a customer is a potential credit risk will allow you to take steps necessary to protect your business like avoiding extending additional credit to that customer and setting up stronger debt collection protocols.

If you detect one or more of these warning signs, it’s important to be sure that you’re doing everything you can on your end to avoid unpaid invoices, including:

  • Investigating customer creditworthiness before you do business (and monitoring regularly)
  • Invoicing early
  • Offering easy-to-use and secure payment options
  • Ensuring your payment terms are clear, including details about delayed-payment penalties
  • Collecting multiple contact methods for your customer
  • Keeping in touch with your customer to strengthen the relationship
  • Talking to the customer about payment options like incremental billing, when appropriate
  • Calling your customer before payments are due to ensure they’re happy with their products/services

If you’re seeing a lot of red flags that could indicate customer non-payment, it may be time to reevaluate the amount of credit you’re willing to extend to that customer and look for opportunities to increase transactions with lower-risk clients. Effective financial risk mitigation strategies help manage and minimize threats to your growth and success from the start.

It can be difficult to spot red flags, however, if the information your credit department has on a business is limited to first-hand experiences and credit reports. One way to compensate for this is to consider trade credit insurance, which can offer more comprehensive risk profiles based on a wide variety of sources, including what other companies working with your customers report experiencing.

If you’ve reached out to ensure the customer received their invoice, offered payment options, issued reminders and late-payment penalties, and your customer still won’t pay – it’s time to take action to protect your business.

  • Reach out to the accounting department or someone else at your customer’s place of business.
  • Carefully review contract details and contact the arbitration board.
  • Contact a business mediator who can work with you and your customer to resolve the issue.
  • Consider an adjusted payment plan if the customer is willing to pay toward their balance.
  • If necessary, you may have to settle for less than you are owed.
  • Consider representing yourself in small claims court or contact a lawyer and file a lawsuit.

If the above steps are ineffective – or impossible – you can report the non-paying customer to a business reporting bureau, which will put your complaint on public record. 

Rather than making hiring a business debt collection agency your next step, you may wish to trade credit insurance as an alternative. If you obtain a new trade credit insurance policy from Allianz Trade, for example, you can use it to not only get insights to avoid more bad debts in the future and protection in the event unpaid invoices do occur, but you can leverage our collections team to pursue existing bad debts.

Trade credit insurance, also called accounts receivable insurance, is a proven method for effectively managing trade risks while safely accelerating growth. With trade credit insurance, if a client doesn’t pay you on time, the insurer will reimburse a percentage of the outstanding credit.

This type of coverage is very flexible and can cover all or part of your client portfolio. The risk intelligence delivered by trade credit insurance from Allianz Trade Singapore also helps businesses make data-informed decisions about extending credit to new clients or increasing credit for existing clients.

I'm new to trade credit insurance and want to learn how it works.
I want to protect my business with insurance but unsure about the cost.
Learn more about Economic & Trade Risk Insights