Staying Healthy: How to deal with clients who won't pay

Cash flow is as vital to the business world as oxygen - companies depend on cash for their survival. In the last year, stock market instability has had a pandemic effect on companies, with previously healthy companies battling for their existence. In unsettled economic times, company owners cannot bank on their clients' good health and should properly diagnose credit risk before doing business. Savvy businesses won't wait for bounced payments and late invoices, safeguarding against clients who won't pay before these symptoms rear their head. Here are some strategies to get you on your way:

Credit, please...

Before entering into a contract with a new client, it is essential to obtain a copy of their credit report. Dun & Bradstreet (D&B) offers the country's leading credit checking service, allowing you to predict a company's financial stability and past payment patterns before you take a risk. A D&B company check incorporates a Dynamic Delinquency Score (DDS), a potent payment predictor that informs you whether you can expect to be paid on time. As an alternative, you can always ask for a copy of a company's financial statements although this method may require some analysis and runs the risk of getting established clients off side. You can remedy this by letting your customer know that this is a standard procedure. Stick to your guns, even with your friends in business. If you have serious reservations about a client, consider taking out credit insurance. It won't guard you from present risks but might be just what the doctor ordered if a customer defaults on a payment in the future.

Take a deposit

Think seriously about asking for a deposit from clients, especially those whose financial health you have little knowledge of. As unnecessary as it may seem at the time, if a customer has already contributed towards a payment, there is every chance of follow through. Additionally, you can speak to your client's lender to secure a bank reference - the higher the transaction value, the smarter this idea is. Make sure you find out if the customer has access to liquidity and if it honours its present financial obligations. It is important, however, to be diplomatic when asking customer to pay cash in advance. You may be guaranteed payment, but you are also monopolising their working capital and may lose them to competitors. Your business will benefit if you assess your clients with discretion.

Listen to your instincts

When it comes to your client relationships, your gut is always right. If you feel that something is risky or askew than chances are it probably is. Don't feel obligated to take on new business if your instincts are telling you to run the other way. Keeping the communication channels open will make it easier to work out if you should commit to your clients.

In business, prevention is always better than cure. Through careful planning and sensible strategy, you can boost your company's immunity against clients that won't pay. Protecting the cash flow of your company will get you one step closer to a healthy financial future, whatever the economic climate.


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