If you extend credit to your customers, how long has it been since you’ve done a credit check on your accounts?
If it’s been more than a year, it’s been too long.
You may know that JK Harris & Co. was my client (I was the ghostwriter for JK Harris’ books Flashpoint, Sales Flashpoint, and IRS Tax Secrets, and handled additional business writing and content marketing projects). When the firm filed bankruptcy, I was one of thousands of unsecured creditors. I doubt that I’ll ever see a penny of what the company owes me. But it could have been worse.
I was paying attention to what was going on with the company and was aware that fewer and fewer suppliers were being paid. Consequently, I took steps to reduce my risk: I terminated my contract when the amount due reached the maximum I was willing to lose.
Just because a company has paid its bills on time in the past doesn’t mean it will do so in the future. It’s good business practice to do a full credit review of every customer at least annually and always be on the alert for signs that a customer is in trouble.
Some red flags include:
- Slowdown in payments
- Increased returns of merchandise
- Difficulty getting answers to your payment inquiries
Even a sharp increase in ordering could signal trouble. Companies concerned that they may lose their credit privileges may try to stock up while they can.
Something else to monitor is a major change in your customers’ product line(s) or customer base. These are issues that could affect their cash flow and ability to pay.
Most customers understand routine credit reviews and accept them as sound business practice. A customer who objects may well have something to hide—and that’s something you need to know.
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