Non-payments by customers can jeopardise your business, or eventually lead to cash flow problems and financial losses. This is a major concern for businesses that extend credit to customers, as it can have a significant impact on their financial stability.

However, there are several steps that businesses can take to mitigate the risks and protect themselves against non-payments.

  1. Conduct credit checks on potential customers: One of the most effective ways to protect your business against non-payments is to collect insightful information about the creditworthiness of your potential customers before extending credit. Continuous monitoring and surveillance of key factors including debt, liquidity, country and sector risks, ensures alarms on potential risks, by identifying in advance customers who may be at a higher risk of defaulting on their debts. This allows companies to make justified and more informed decisions about whether to extend credit or not and avoid foreseeable losses from the start.
  2. Set clear terms and conditions for credit: Another important step that businesses can take to protect themselves against non-payments is to set clear terms and conditions for credit without compromising their financial situation or the concluded deal. This can include setting a credit limit, namely the maximum amount of credit granted to each individual customer, and requiring a deposit or a guarantee before offering favourable credit terms.
  3. Follow up on invoices: It is important to follow up on invoices as soon as possible, to minimize the risk of non-payment. This can include sending reminder notices with invoice details to remind clients of their obligation, making phone calls, and in case of overdue invoice taking legal action if necessary.
  4. Factoring: Factoring is a financial transaction which involves a business selling its accounts receivable (invoices) to a third party, known as a factor, at a reduced amount of the face value of the invoices in exchange for immediate cash, to meet its short-term liquidity needs. This allows companies to access the funds tied up in their unpaid invoices and apply toward future projects, payroll or other operating expenses without having to wait for the payment of invoices. Factoring can also deliver additional services such as credit and collections management, that can help to better manage sales and cash flow. However, while receivables factoring can be beneficial in the short-term, there are long-term costs to consider.
  5. Use trade credit insurance: Trade credit insurance protects your company against the risk of non-payment by customers and ensures that your business can safely operate and grow, without fearing the consequences of unpaid invoices. This type of insurance policy can help to cover the costs of bad debts and can also guarantee additional services such as good credit management and risk analysis to support and strengthen your trading activity. This mainly concerns businesses that rely heavily on credit sales, as the risk of non-payment can compromise their cash flow and have a significant impact on their financial health.

In conclusion, non-payments can hurt the financial stability of all sizes companies, but there are several solutions that businesses can put in place to protect themselves against the largest and most common risks.

These include conducting credit checks on potential customers, setting clear terms and conditions for credit, following up on invoices, using factoring or trade credit insurance. 

By taking these steps, businesses can ensure non-payment protection and monitor their financial situation.