In Focus Commercial Credit


Signs that your client may be sinking


There are specific scenarios that you can look out for that may suggest a client is in trouble, and actions you can take to protect your firm


Christina Massaad Managing director, Cedar Rose Christina.Massaad @cedar-rose.com


The number of UK business failures is expected to increase in 2019, with the retail sector being the hardest hit. However, manufacturers and exporting


businesses could also suffer the consequences of Brexit and this is likely to have a knock- on effect around the globe. As a result, companies in the UK may be


trying to delay paying their bills, in order to maintain cash in their accounts.


Excuses All credit controllers know the excuses customers make when they are trying to delay settling their invoices, but here are a few prime examples: l “I never received the invoice.” l “The company name is misspelt on the invoice, can you resend?” l “Our accounts-payable lady is now on holiday.” l “Our director is away on business and he has to sign off the payment.” l “Je ne comprends pas...” And so they go on.


Delaying tactics These are the usual delaying tactics companies use to ensure their business maintains a healthy cashflow, and, of course, they never come up with these excuses until the invoice is due or overdue for payment. So, unless you start the process of chasing


payment as soon as the invoice is sent, then you are likely to face delays and your own organisation’s cashflow will be affected. This, of course, causes a domino effect.


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Indications However, there are signs you should look for which indicate that your customer is in serious trouble. Firstly, they may not respond to your


e-mails, you may not be able to contact the right person by telephone – they seem to be in an endless meeting – and even if you pass by, they simply cannot be reached. Secondly, when your demands become


stronger – perhaps by this stage you have mentioned calling in debt collectors or lawyers – they ask for a longer term – such as quarterly rather than monthly – or they settle a portion of the invoice, but not all of it.


Taking action These are an indication that your customer is experiencing serious difficulties and there are two ways you can handle the situation: call in debt collectors straight away or cut your client some slack and let them know you are doing so. Both actions are risky, for the following


reasons: l Calling in debt collectors when your customer is experiencing cashflow difficulties is likely to end the customer relationship with your company. You may be able get the current


These are the usual delaying tactics companies use to ensure their business maintains a healthy cashflow, and, of course, they never come up with these excuses until the invoice is due or overdue for payment. So, unless you start the process of chasing payment as soon as the invoice is sent, then you are likely to face delays and your own organisation’s cashflow will be affected


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outstanding invoices settled, but the customer is likely to go elsewhere in the future, should the company survive. l Giving your customer more time will be appreciated and will enhance the relationship should they get through their current cashflow situation. You could end up as their favoured


supplier, and they might even always pay you first in the future. However, it could make you last on their


list of suppliers to pay right now, whilst other companies are calling in debt collectors or taking them to court. If the customer does go under, it is possible


that your current outstanding invoices will never get paid at all.


Conundrum This is one of the conundrums all credit controllers face at some point, and there is no easy way to know which one is the correct action to take, though your company’s credit policy should clarify this.


October 2019


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