In the supply chain industry, a responsible business manager must have a heightened sense of awareness on their customer’s financial standing. It is easy to get caught up in fulfilling orders and closing new customers, but making sure you get paid by customers should still be a priority.
There are many ways to find out whether your buyer is headed for financial difficulty. However, some signs are harder to see than others. These are quick and glaring signs that you may encounter at any day, and you should not ignore.
1. Suddenly asking for extension in due date
Sad to say, but paying past due is almost normal in the B2B industry, but if they are asking for more than one month extension for their payments, it’s a red flag. This usually means they’re having troubles with their cash flow. The first thing they will negotiate is payment terms with their suppliers and providers.
2. Negotiating for discounts
Similar to the first item, a customer headed for financial difficulty if they start asking for discounts on their payable items. This is a bigger red flag if you have already been doing business with this customer for a long time, and suddenly they are asking for discounts for shallow reasons.
3. Hard to reach or contact
Another obvious sign is when you are following up with your customers on their due payments and all your calls are going direct to voice mail, your emails are not getting responses, and messages are left on read. Even more alarming is when you visit their office in person, and they seem to avoid seeing you!
4. Major shifts in the industry
If you customer is under an industry going through a major shift, you may need to keep a closer look. These major shifts can be caused by many things such as: government regulations, new advances in technology, and economic crisis.
- Regulations: Strict government regulations in the mining industry have caused many companies to stop operations entirely.
- New technology: When online selling became a cheaper alternative for consumers, retail companies that rely on physical stores can have major problems.
- Economic crisis: The COVID-19 pandemic caused an economic downturn, affecting all industries.
If you encounter any of these situations with your customer, you shouldn’t immediately panic. There are many reasons why they pay late or cannot be reached, and some of these reasons may be valid and don’t necessarily mean they are headed to financial trouble.
The best way to know is still to look under the hood. Get a copy of their latest financial statement and analyze the figures yourself.
Another option: leave it to the professionals. Trade credit insurance underwriters are experts at looking at financial standing of companies. Their assessment can help you in knowing your customers better. Plus, your receivables are covered in case your customer fails to pay*.
Don’t know where to find trade credit insurance? Creating an account with Vesl can give you access to top insurers of trade credit.
*terms of the insurance policy applies