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Early Warning Signs
Early warning signs for commercial bad debt can be very expensive when ignored. Sometimes early warning signs are nothing but sometimes they can be a red flag for a potential bad debt. With commercial debt the balances are higher and so is the risk. A credit savvy company pays attention to the 10 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 a potential bad debt.
Bad Debt Warning Signs
- " I’m just in the process of getting new financing and changing banks"
If a debtor company is getting new financing for a major expansion then this could be a good thing for future business. However, if new financing is to cover large loses then their account should be watched very closely. - “We lost our biggest customer” This statement can be a real bad omen of a bad debt. If a major customer changes to another supplier it can mean the debtor company is in for major losses. 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.
- Trade Rumors 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 being sued by another supplier In some cases the law suit is a minor dispute and of little consequence to your customer. However, it could also mean that the law suit 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 real good or real bad. On the good side, your customer may be going through a major 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 also be nervous 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 for the worst. Mail returns are a strong indicator of a potential bad debt.
- New Owners If the customer has told you about the sale beforehand then 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 bring in a collection agency. Keep in mind that you are not their only creditor and 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
