Warning Signs That a Customer Account is About to Become a Bad Debt

If you run an ecommerce site and you are worried about certain customer accounts becoming a “bad debt”, in the vast majority of cases you will be running a B2B ecommerce venture that receives payment via invoices and builds up clients who place repeat orders and to whom you regularly sell. With such a client base, questions of payments usually become long term affairs. And problems in payment (either payment arriving late or not at all) can cause serious cash flow problems.

There are many great services that can help with this, ranging from debt factoring to short-term business loans. However, the wisest remedy is to get to the root of the problem and to ultimately cut out those clients who have become bad debts.

fastFACTR, a company specializing in the aforementioned cash flow services, note that there are several signs to look out for – not only that a client is not a reliable payer, but also that a client is soon to become one. Knowing these preliminary steps is your best chance of heading the problem off and doing something about it before it causes a serious cash flow issue. Of course, you should always be diplomatic and tactful, but there comes a time to be hard.

When to Give Leniency

To be clear, we are not talking here about clients that have paid for months and then suddenly miss a payment. Almost as important as securing payment is building a good, and even friendly, relationship with your clients. A client who is usually reliable and then pays a few days late on one occasion is hardly going to cause serious cash flow problems and, in any case, it is wise to offer leniency here and a little bit of leeway. A good long term business relationship is certainly based, to some degree, on trust and the mutual interest that trust serves. This is an important principle to bear in mind.

Signs That an Account is Going to Become a Bad Debt

Education is everything. You should educate yourself on the commonly observed signs which indicate that a particular client is soon to become a bad debt. Here are some of the most common:

Change in Payment Patterns

As mentioned, a single one-off payment delay from a longstanding customer is not a serious issue and should always be treated with leniency. Nevertheless, a sudden change in how the customer pays could indicate trouble. For one thing, it could indicate a cash flow problem and, in turn, an issue that is more than temporary. Keep an eye out for this.

Order Volume Declining

If you can chart a decline in how much a customer is ordering that persists over several months, then this could be an indication that they are running out of money. You should be careful here, as ordering less is not always because something is wrong; in any case, clients should be allowed to reduce their order volume. Even so, this is one of the signs.

Payment Immediately Before Ordering

One of the signs that a client company is on the ropes is if they pay an old debt immediately before making an order. This could indicate that the company is doing anything it can to keep trading, and that the next order could be the last one you fulfill before it goes unpaid.

A good relationship with your clients is essential, but it is certainly worth paying attention to their paying habits. At any rate, it is the best way to avoid getting suddenly caught out.