There is no denying that we live in uncertain times at the moment in the UK, and that uncertainty trickles down into every element of business and the economy. Today, one of the single biggest risks to businesses is still financial, with more than 80% of businesses owed money at any given time. As a business, this can mean you keep a keener eye on the purse strings, and are acutely aware of debts that become overdue. But how do you avoid that in the first place? What warning signs are there that a potential customer might turn into a bad debt, and what can you do to avoid it?

Significant First Time Orders

Typically, businesses are overjoyed when a big order at full price comes in. But when it’s from a customer who’s never bought from you before, you need to be careful. Many people with no intention to pay will often start out with a massive order using your credit system, so that they can get the most goods before you deny them in the future. Big first time orders are a typical red flag for delayed payment, non-payment or even fraud. That’s not to say every customer will be like that, but if you get a substantial order from a new customer, it’s worth doing some checks to ensure they can actually pay for it.

Industry News

Although this may only be relevant to bigger businesses, industry news is a good way to stay ahead of the curve. You may occasionally hear of the misfortunes suffered by a company you’ve dealt with, or are planning on dealing with, that could have a knock-on effect on their ability to pay. This doesn’t just have to be them declaring bankruptcy though. For example, if they’ve lost a major contract, or if one of their own clients has left them, it could result in cash flow problems for them, which could in turn lead to cash flow problems for you.

Excuses, Excuses

Most of us have come across that one customer who always has an excuse for not paying their invoice. And while it’s true that even the best of us might sometimes forget, there are some that do so intentionally, and out of habit. These excuses could range from ‘sorry I forgot’ and ‘I’ve been out of town’ the first few times, but then gradually move on to things like ‘IT issues’, ‘audits’, ‘company restructuring’ and even ‘changing bank’. Continued excuses from a debtor who’s stalling payment is a pretty good sign that trouble is on the horizon, which means you should take some more assertive action to reclaim that money now.

So What Can You Do About It?

Before you engage with a new customer, it’s advisable to do some due diligence. This is particularly important if your business lends any kind of credit, as this will affect your bottom line enormously if a client doesn’t pay what they owe. This will include things like knowing what to look out for in a new client, and doing some background research before you take them on. For example, running credit checks is a method often used by bigger businesses who operate on credit, as it helps them see if their customer has a history of bad debts. You could also run a financial health check through companies like us, so that you can not only see their history, but asses their ability to repay your debt right now, before you offer anything.

At Debtcol, we work with businesses of all shapes and sizes to help them understand their debtors better, and put policies in place to ensure bad debts don’t accrue in the business. We offer a wide range of services, from outsourced debt collection to financial health assessments, information recovery and forensic account analysis, so you can gain a fuller understanding of your customers from day one. For more information, or to book your free consultation, just get in touch with the team today.