Warning Signs of an Impending Commercial Bad Debt
Here you will find 10 warning signs of a potential write off, or commercial bad debt. Ignore these warning signs and sooner or later you will be stuck with a bad debt. Often warning signs turn out to be nothing. However, in many cases warning signs are an indicator of future payment problems. If you heed these warning signs you may prevent a future bad debt.
Commercial debtors can be extremely creative when avoiding payment of a debt. When warning signs appear it is advisable to update your customer’s credit information and review their terms. If severe warning signs emerge while updating the customers’ information, it may be prudent to immediately list their account with a collection agency. It is always better to get a percentage of your money now, rather than 100% of nothing when you write it off as a bad debt.
The tone of any conversations with the debtor, or debtor company, should be factored in. Has their attitude changed in a negative manner from previous conversations? Companies under heavy financial stress will often turn belligerent for no apparent reason. A quick update of your customer’s information will give you a good idea whether you should be worried about a potential bad debt.
10 Commercial Warning Signs
1. Debtor says they will pay once they get their new financing
Usually when a debtor uses this excuse it is either really good, or really bad, and rarely in between. Even if their situation appears to be okay, their account should be monitored closely and terms re-evaluated. The big question is, what happens if they do not get their financing?
2. Debtor has you on Ignore and is Extremely Evasive
When a customer is dodging calls, it is time to consider listing their account for immediate collection. This warning sign is usually an indicator they owe a lot of money to other creditors and are being aggressively pursued for payment. In these instances, it is the creditors who list their account first that get paid. Late comers are the ones who end up with a bad debt. With commercial debt, evasive behavior can also be a warning sign that your customer is conveying and-or liquidating their assets.
3. Loss of a Major Customer
Many companies make 80% of their revenues from 20% of their customers. When your customer loses one of their biggest customers, the effects can ripple through their entire company. As their cash flow deteriorates, so does the ability to pay your invoices. Be sure to ask a lot of questions, as the answers will reveal your risk of a potential bad debt.
4. Loss of a Key Manager or Employee
The loss of a key person can be an extremely dangerous warning sign. In some cases a company can literally fall apart and implode in a short period of time. If there are any signs of slippage with their payments their account should be monitored closely and terms re-evaluated.
5. Customer Hit With a Large Write Off
When a customer has to write off a large bad debt they cannot afford, it will have an impact on their financial health. This situation should be monitored closely, as the loss of a large receivable can cause chaos.
6. Customer is Being Sued by Another Supplier
When a customer is being sued by another supplier it is a good time to find out why. This warning is a wake-up call to monitor their account, re-evaluate your position and re-evaluate their terms. Often this warning is a sign that their account should be immediately listed for collection.
7. Change of Ownership
When a company is sold or merged it is an immediate warning to re-evaluate their terms and credit agreement. If the customer gave advance warning the transition is usually organized and you will be paid. However, should you hear about it from another source it should be viewed as a potential warning sign of an impending bad debt.
8. Broken Promises
Broken promises indicate your customer is losing control of their cash flow. Their excuses become flimsier as they keep stalling to buy time. When this pattern develops it is probably a good time to list their account for collection.
9. Emails Bounce – Website is Down or Abandoned
Sometimes a company will suddenly go out of business and their emails start bouncing. If their website is down, or inactive, their account should be immediately listed for collection.
10. We are Broke
These three simple words are a severe warning of a probable commercial bad debt. When a customer tells you they are out of money and-or have no idea when they can pay, their account should be immediately listed for collection. Usually by this point secured creditors are seizing their collateral or in the process of suing the debtor.
Bad Debt Recovery
If any of the points above sound familiar it may be time to list your customers debt or collection with IRS Collections. You can also schedule a free, no obligation consultation on recovering commercial bad debt.