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How to Collect Business Debt
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Article 3: When Red Flags Go Up
Most people are honorable and want to pay their bills. But even the most principled client may renege if their own business is struggling.
There are warning signs that a customer is in peril and may even be contemplating bankruptcy. Pay attention to these red flags because debt doesn’t get more collectible with time.
Slow payment is the most obvious alert.
“If a regular customer went from paying in 30 days to 45, I’d start asking questions. When the money flow slows, they are usually making a conscious decision,” says Darrell Cook of the Dallas law firm of Darrell W. Cook & Associates.
He adds a caveat, however. “It’s one thing if the payables person just had a baby and everyone is trying to make do. You should have enough of a relationship with the client to know what is going on.”
Layoffs definitely raise flags at small businesses because they typically need steady staffing to operate effectively, notes Cook. Large companies, however, may have various strategic reasons for layoffs that don’t reflect on company stability.
Pay attention also if a client calls frequently with excuses why he can’t pay on time, says Kimberley Tyson, a bankruptcy attorney with Denver’s Sherman & Howard law firm.
And of course, don’t ignore it when a normally accessible client is increasingly unavailable or won’t return calls.
So how can you protect yourself when the red flags start flying? Here are some suggestions:
- Stop doing business with the customer immediately.
- Require the delinquent customer to pay for merchandise and services in advance or demand cash on delivery of goods.
- Check current financial health by pulling the most recent Dunn & Bradstreet report, if the customer is a large company.
- Try to arrange a payment schedule for the tardy debt, say one-third each month over the next three months.
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