Early Warning Signs
Early warning signs for bad commercial debt can be costly when ignored. Sometimes early warning signs are nothing, but they can be a red flag for potential bad debt. With commercial debt, the balances are higher, and so is the risk. A credit savvy company pays attention to the ten early warning signs for a bad debt.
These early warning signs could be groundless and simply a misunderstanding. However, these warning signs could also be the indicator of potential bad debt.
Bad Debt Warning Signs
"I'm just in the process of getting new financing and changing banks."
Suppose a debtor company is getting new financing for a major expansion. In that case, this could be a good thing for future business. However, if further funding covers significant losses, one would want to watch that account very closely. "We lost our biggest customer."
This statement can be a real bad omen of a bad debt. If a significant customer suddenly changes to another supplier, the debtor company will be scrambling to replace that cash flow. It could also be an indicator that their product or services are no longer as competitive. However, some companies have already planned for the departure and made the necessary adjustments. Either way, be sure to ask questions.
"We lost a key employee."
Depending on the employee, this statement could be catastrophic or just a bump in the road. In some cases, the departure of a key employee, who is the actual brains behind a company, can spell disaster. Be sure to figure out which scenario you are dealing with; otherwise, you could be looking at a potential bad debt.
"We are having trouble collecting our accounts receivable."
This statement can mean many things. It could just mean they are going through a minor slump in their industry OR possibly something bad. Usually, a statement like this is an indicator it is time to know your customer better.
Sometimes rumors are groundless, and sometimes they are not. Rumors usually swirl around when a company is going out of business. In this case, separate fact from fiction, or you could be looking at a potential bad debt.
Your Customer is Named as a Defendant in a Lawsuit
Perhaps you learn a supplier is suing your customer. In some cases, the lawsuit is a minor dispute and of little consequence to your customer. However, it could also mean that the lawsuit is just the beginning. Ignoring this warning sign is a sure way to create bad debt.
Constant Credit Inquiries On Your Customer
A constant stream of credit checks is either good or bad. On the good side, your customer may be going through a significant expansion or expanding into another market. On the bad side, your customer may be desperate for credit, as all his credit lines are maxed out. It could also mean that other suppliers are nervous about your customer, and maybe you should be worried about a potential bad debt.
Mail is Returned
Mail returned is either an innocent mistake or, most likely, a precursor to bad debt. Mail return indicates the customer's situation has changed for the better or the worst. Mail returns are a strong indicator of potential bad debt. Check with your sales team to see if they moved and no one updated your system or something less desirable.
Suppose the customer has told you about the sale beforehand. In that case, the transition is expected, and most likely, you will be paid. However, when the news comes out of left field, it is usually a warning of a bad debt on the horizon.
Messages Ignored – Promises Broken – "We're Broke"
These are immediate calls for action. When the situation deteriorates to this point, it is time to consider engaging a collection agency. Remember that you are not their only creditor. When a company is going out of business, it doesn't take long for assets to evaporate. Consider AAB for Commercial Bad Debt Recovery. When it comes time to consider a collection agency, consider AAB. One of our professionals is standing by to assist you in recovering a potential bad debt. Give us a call or schedule your free consultation on commercial bad debt.