That’s what happened to the suppliers of a sizeable UK construction firm in the North of England when it went into administration without warning just before Christmas.
Yet all the usual indicators had looked good.
The construction firm’s last accounts showed a reasonable profit; credit rating agency reports gave no alerts; and the pre-Christmas LinkedIn post from the company showed a video of staff putting up the Christmas tree to jolly festive music.
Any doubts – diffused.
But how can you find out earlier if a customer is having problems?
When a business hits tough times survival instincts will kick in – the business will preserve cash in every way they can in the hope they can ride-out the downturn. That’s your first warning sign – if a customer changes (even slightly) the way they have always paid you (their normal payment pattern) then you need to act on it immediately.
- Why would your customer change its payment pattern?
- Would you even notice if they did?
- If the customer eventually paid you, would you take any further action or just move on to the next problem on your list?
A business that is gradually paying you later and later is showing signs of cashflow problems – you need to do two things:
- Identify changes in payment behaviour as they happen.
- Take appropriate action
Top tip – predict your credit control
If you LEARN and MONITOR your customers’ REAL payment patterns (I don’t mean payment terms or average days to pay – these methods leave you exposed), you will see potential risks and have time to react to dodge bad debt. You’ll also be able to save a huge amount of time and money in collecting your cash and have an accurate view on when cash will come in to your business.
You can do it yourself or try our new low cost add-on for Xero, QuickBooks or Sage for free at WOWintelligence.com – no configuration required.