DID YOU KNOW? According to Dun and Bradstreet’s database of 34 million businesses, nearly 6% of these businesses’ dollars are over 90 days past due. Avoid being part of this statistic by learning how to identify late paying customers early on.
Expert accounts receivable managers have a secret: they act quickly and fervently on accounts that show early signs of delinquency. To become an accounts receivable pro, you must learn to spot the beginnings of a delinquent customer. Keeping your eye on these details will help you to avoid extending credit to a customer that will soon turn into a debtor. You’re not completely innocent when it comes to late paying customers. You have the power to keep customers from becoming debtors and accelerate collections before it’s too late.
Late Paying Customers: How to Identify the Early Warning Signs
1) Broken Promises
You have to rely on a customer’s integrity when accepting their payment. When they start breaking promises, it becomes your right to question their integrity. Late paying customers don’t keep promises, and if this client breaks a promise more than three times, it’s a good indication that they are headed down that path.
2) Unreturned phone calls
The voicemail has become the perfect tool to assist customers in ignoring your calls. To make sure they understand the urgency of your call, always list deadlines in your voicemails. However, if you have left more than one message without a return call, or if you’ve called two times without a return, there is most likely a problem. To get an increased return rate on your calls, always follow up with an email. This helps in situations where the customer might be on vacation, etc. The moment you realize your customer is becoming harder to reach, it’s time to do some investigation to make sure they aren’t turning into a late paying customer.
3) Increase in reference requests
If out of nowhere, all of sudden, other vendors are asking for references on your customer, it might allude to the fact that your customer is overextended. They could be feverishly looking for credit from other sources, as they can’t obtain it from their usual vendors who’ve identified them as late paying customers. Be cautious in extending these customers additional credit. Also, it’s good practice to keep those vendors’ contact information, in case you find yourself in need of future references.
4) Changes in payment patterns
When you notice that your customers’ paying patterns are changing, don’t be afraid to start questioning their cash flow. Do your research to see if there is an issue, which will help you decide whether to extend additional credit. If the customer appears to be working with you, showing they are trying, this should be taken into account. It’s possible they have just fallen upon a hard month. Either way, keep up the communication. If the customer starts avoiding you, then it’s time to protect the receivable and assume they are on their way to becoming a late paying customer.
5) Changes in buying patterns
When you notice a customer buying less from you, they could be seeking credit from other suppliers in your industry. Especially when faced with a financial predicament, companies HAVE to look for credit elsewhere just to get by. It’s smart at moments like this to obtain your customer’s credit report, and find out exactly what is happening with their finances.
6) Cash Flow Excuses
Be aware that there will always be times when a good customer momentarily becomes a late paying customer. Every business can have out-of-character struggles with cash flow, but it’s your job to verify this and work with your customer to agree on a deadline. Once they miss that deadline, you must realize it’s a problem. Also, if a customer is constantly claiming to have cash flow problems, you have to evaluate if this customer deserves credit. Contact their vendor references and see if they experience the same issues. If so, only sell on COD (Cash-on-delivery) terms with that customer until their payment behavior has changed. They may not always be a late paying customer, but you have to protect your receivables until they start meeting their deadlines.