Despite the economic upswing, financial risk still poses the biggest threat to firms of all sizes. To ensure your business stays on track, here are some of the biggest red flags to help identify bad debtors.
- Significant first-time orders
Businesses are overjoyed when a large order (at full price) appears on its books, but when it’s from a customer that’s never purchased before, be sure to action the appropriate checks to identify their legitimacy and financial viability.
This red flag can often mean fraud, with delayed or non-payment of a significant order potentially leaving the business in severe financial difficulty.
Implementing 50 per cent or full payment up front to orders over a certain amount can prevent issues arising with new customers.
- Delayed payments
Supplying goods or services when debts remain overdue is an issue that needs addressing immediately. Signs that a customer is suffering from volatile cash flow include making payment only when reordering, failing to comply with credit agreements or requests to change the current payment terms.
- Excuses, excuses, excuses…
Continued excuses from a debtor that’s stalling payment is often a tell-tale sign that trouble is ahead. Generic excuses usually include IT issues, audits, company restructuring and changes in bank.
- New financial arrangements
If the debtor is in the process of changing banks or receiving new financing then it usually means one of two things – major expansion or large losses. If it’s the latter, then be sure to approach the customer with caution.
- A new team
The departure of a key employee or a high turnover of staff is often one of the most dangerous warning signs. It can mean the loss of particular clients and skills, which can have a devastating effect on the business.
- Surge in credit checks
This is treated casually by some companies thinking that debtors are implementing a substantial growth plan. However, it could also mean that the customer is suffering from an inability to pay its current creditors or is suffering financial losses.
Unfortunately debt is an inevitable risk for business with the total amount outstanding to UK firms recently surpassing £26bn.
Asset finance can help to release vital funds to assist with financial woes. Refinancing, for example, releases capital tied up in existing assets, which can help a company to recover from bad debt, reduce overdrafts, boost cash flow and fuel expansion.
To see how Praetura Asset Finance can protect and boost your finances, contact us today on 0333 343 7800.