3 Late Payment Red Flags You Don’t Want To Miss

Sometimes everything can seem like it’s going perfectly with a client. You’re working well together, they seem happy, and everything is great. And then all of a sudden, payments are missed. Either they arrive late with a raft of flimsy excuses, or they don’t come at all. You chase and chase, with varying levels of success, and you’re left wondering, ‘What did I miss?’.

You aren’t the only business owner to miss the red flags of late payment from a client, or to not even know that the red flags existed. So rather than feeling sorry for yourself, give this article a read so that you don’t miss any of those red flags in future.

Economic Situation

There’s no denying that the economic climate is tough right now. Every business has been affected in some way, so you need to take this into account when working with clients. Businesses that are more heavily impacted by tough economic climates will often struggle to make their payments to you, especially if your bill is low on the priority list. When onboarding a client, look into whether their sector is negatively affected by the current economic setbacks, or if competition is particularly fierce in their sector. If it is, then they are more likely to struggle with payments. It’s then up to you whether you decline the work, or whether you choose to continue but with some level of protection in place for you (such as payment in advance or deposit payments).

Payment Practice

Previous communication and payment history are some of the most valuable pieces of information you can get from your customers, and it can give you a lot of warnings regarding payments. For example, has your customer not stated in writing, or provided written agreement of when they will pay you? Have they been particularly difficult to get hold of during this period? On the payment history side of things, has your customer regularly failed to pay on due dates? Do they avoid telling you why payments are late, and only pay after you remind them? Maybe they’ve told you payments will be delayed, but given timelines like ‘once our clients pay us’ or ‘until they get a loan payment through’? In other words, very woolly excuses? Understanding their payment patterns gives you a good insight into what their future behaviour is likely to be like, and can serve as a warning you need to either put extra protections in place or step away from the customer completely.

Purchasing Behaviour

Sometimes the red flag behaviour isn’t as obvious as the previous examples. Sometimes, it can be more subtle, so much so that you might not even notice it unless you’re looking. In this case, you need to look carefully at your customer’s buying behaviour with you, and with other suppliers. Changes in your customer’s suppliers or their orders with you could be a sign that something is wrong.

For example, has your customer changed one of their suppliers because of a failed business relationship? Was that failure caused by a lack of payment? Have they been looking for an alternative supplier for what you provide them? Have they made baseless complaints to you that could be used as an excuse to delay payment? Or maybe they are buying less to keep costs down, or even buying a lot at once, knowing they won’t be able to buy again soon? These are all subtle signs that late payment may be on the horizon.

Of course, you don’t always know whether your customers will actually pay late. But if they show any of the red flags above, you can at least put some plans into place to protect your own cash flow. Based on the risk level of each customer, you may need to remind them to pay before the due dates, plan collection activities in advance, or arrange pre-payment plans for them. All of this can be incredibly time-consuming and difficult to manage. That’s where we come in.

At Debtcol we don’t just do collections. We work alongside your business to assess risks, create policies to protect your business and manage your relationships with customers from start to finish. If you’re struggling with late-paying customers, we would be happy to help. Just get in touch with the team to book your no-obligation consultation today.