Late payments can disrupt any business, affecting cash flow and causing unnecessary stress. Wouldn’t it be great to predict when a customer might struggle to pay on time? By identifying red flags early, you can take precautions, improve communication, and increase your chances of receiving payment on schedule.
Here are the key warning signs to watch for:
1. Suspicious Information
Red flags often appear as early as when you’re taking an order or opening a new account. Watch for:
- Suspicious contact details: Spammy email addresses, PO Box numbers, or only mobile phone contacts.
- Refusal to sign contracts: A signed contract or formal acceptance of your Terms & Conditions can protect you if payment issues arise.
- No accounts payable department: Small businesses with one person handling multiple roles may deprioritise paying invoices.
- Preference for cheques: Cheque payments allow stalling tactics, as they rely on postal delays and clearing times.
Solution: Use account opening forms to gather accurate company details and consider requesting upfront payment if anything feels off.
2. Unusual Customer Behaviour
Building a rapport with customers helps you recognise their usual patterns. Pay attention to sudden changes, such as:
- Disorganization or indecision.
- Overly critical or hesitant behavior.
- A shift in tone via emails or phone calls.
These can signal underlying issues. Proceed with caution and monitor payment progress closely.
3. History of Poor Payment
Past behaviour is often the best predictor of future actions. Watch for:
- Customers who’ve paid late previously.
- Poor credit ratings or County Court Judgments (CCJs).
- Late filings of company accounts, which may indicate financial instability.
Solution: Conduct credit checks, review payment reporting regulations, and consider upfront payment terms for high-risk customers.
4. High Staff Turnover
Staff changes can indicate deeper company problems:
- Frequent employee departures may point to instability or a toxic environment.
- Sudden resignations of senior executives could signal financial trouble.
Action: Keep up-to-date contact details to avoid payment delays caused by role changes, and don’t hesitate to ask questions when staff leave unexpectedly.
5. Lack of Communication
Unanswered calls, ignored emails, or returned letters often mean a customer is avoiding you. This silence may signal they’re unable—or unwilling—to pay.
Action: Intensify efforts to establish contact, whether through accounts payable teams, directors, or order placers. If no resolution arises, consider engaging a debt collection agency to recover your payment.
6. Sudden Business Changes
Watch for abrupt changes, such as:
- Reduced buying patterns or asset sales (a sign of cash flow issues).
- Rapid expansion, which could indicate overtrading and future financial strain.
Pro Tip: Stay alert to industry news that might reveal external challenges impacting your customers’ ability to pay.
7. Trust Your Instincts
Experience sharpens your ability to identify customers who may delay payment. If you have a gut feeling that something is wrong, trust it. Treat these customers with extra caution and consider proactive measures, such as requesting partial upfront payments.
Final Thoughts
By spotting these warning signs early, you can take steps to protect your business. From securing contracts to improving communication and conducting credit checks, being proactive is key to minimising late payments. Trust your instincts, stay vigilant, and keep your cash flow strong.