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Customers showing signs of financial distress



Posted: November 20th, 2014

When you provide credit to your customers it is important you have a plan of action in place for the eventuality of them showing initial indications of financial distress.  An early indicator of financial distress can be when a customer’s payment pattern changes for the worse with delayed payments or bounced cheques being received and it is at this point you need to establish whether the customer can pay and will pay.

In such circumstances we recommend contacting your customer as soon as possible to obtain up to date trading information, such as their bank overdraft limit, current cash flow position and what their immediate and longer term business plans are.  You can then take this information into consideration and make an informed decision on how to proceed.  

In many cases amending the payment terms is beneficial, this could include pre-payment for goods or services, or increasing the level of deposit to secure the purchase of goods or services.  If payment terms are amended make sure you have these amendments documented in writing, they are agreed by the customer and you continue to monitor the ongoing situation.

By identifying a problem early enough you may be able to avoid dealing with liquidators and administrators, this will avoid you being paid only a very small proportion of what you are owed if your customer goes bankrupt.

If you have a customer who is a late payer or persistently has outstanding debt, or if you think a customer may soon fall into this situation and require further information, please contact us on 01228 713070 and we will help.

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