Would your customer tell you if he wasn’t going to pay you on time?
You’d like to think that they would, but in reality they won’t, and as such it is down to you to identify when you might find yourself having a customer who is becoming a little bit slow in paying.
Obviously the sooner you can identify when things start to get challenging for your customers the sooner you can take action to make sure your invoices get paid. But what should you be on the look out for?
Monitor payment dates
If you have customers who you invoice regularly you’ll have built up a history of the invoices you’ve raised and the dates that these invoices get paid. If you’re lucky the invoices will be paid as per the payment terms (e.g. 30 days), but they might be more. However, if the number has been consistent at whatever level it was but starts to increase then this might be a sign that the business doesn’t have access to the cash needed to pay your invoices so is waiting for funds to come in before they can go out in the form of a payment to you.
But what if you don’t invoice them regularly or they are a new customer?
Credit Reference Agencies carry data on businesses and their payment history, which usually results in a Payment Beyond Terms (PBT) or Payment Delinquency value that indicates how long after the payment terms a company typically pays. This can be compared to an industry average to get an idea as to whether your customer is any worse than anyone else in their industry. If you subscribe to a credit data service such as CreditHQ then you’ll be able to monitor this number and get alerted whenever the number starts creeping up.
I’ve heard of credit scores, do they help?
Credit Scores from the likes of Experian and Dun & Bradstreet give scores to help indicate the risk of a company going out of business. They weigh up a company’s payment history that we mentioned above, any outstanding debt they might have, any financial information available from public records such as court judgements and insolvency, as well as the length of the credit history (much in the same way that individuals have a credit rating).
So typically a credit score that is trending downwards is a sign that things might not be rosy over in your customer’s business.
What should I do if I think that something might not be right?
In short, deal with it, and quickly. You should get any invoices you need to out the door and into their hands. You should call them up to push for payment. You should potentially look at changing your payment terms with them so that you get paid sooner rather than later. And keep monitoring. Sometimes it is only a short term problem that they’re facing, but it might be something deeper and you don’t want them going out of business and owing you money, as you might not see that money again