Don’t Give Defaulters a Chance: Discover the 6 Alarm Signals to help prevent you and your company

The financial health of your company is a constant concern, certainly now that the economic effects of the coronavirus are being felt. But after a crisis, even greater alertness is needed. Because the risk that customers and prospects may jeopardise your own financial health is greater than ever.

Which alarm signals indicate potential defaulters? How can you prevent defaults? And what can you do to arm yourself effectively against this? We set it all out clearly here.

• Six alarm signals
• Solutions
• Effective protection

These 6 alarm signals point to payment default

Payment default is a serious (and sadly often fatal) problem: the sooner you get on it, the better. But prevention is still the best of all options. We know from practical experience that defaulting is often preceded by a series of signals.

Do you recognise these?

1. Changes in payment behaviour.

A frequent alarm signal: outstanding invoices are paid later and later. Lagging, as it’s called. Have you received a request for a deferral of payment? You can agree to that, subject to strict arrangements. But if late payment gradually becomes a regular pattern, this can result in defaulting.

2. The excuses pile up. ‘Our accountant is on holiday.

We’ll deal with it as soon as he/she gets back’, ‘We’re having technical problems with the system’, ‘There was a mistake with the delivery’ or even suddenly ‘Actually, we are not at all satisfied with what you have delivered’. Excuse after excuse not to pay your invoices or to pay late should set alarm bells ringing.

3. Your customer is suddenly difficult to reach.

Unanswered emails. Telephone calls that are not taken. Voicemail after voicemail. Texts with no response. If a customer does not contact you after repeated attempts, you have (probably) figured out how things stand.

4. The management is not very stable.

Is your customer’s management linked to companies with a poor record as regards payments or bankruptcies? With smaller companies especially, the past is often a good indicator for the future. Paying extra attention can never hurt.

5. There are a lot of changes at your customer’s.

Are there frequent changes in management or at the head office? Has the current financial year been extended without a well-founded explanation? Did the company file its annual financial statements on time? If not, this already raises questions. Changes in themselves are not a problem, but if this is not in line with the normal course of affairs, then it’s best to stay alert.

6. Your customer has fewer and fewer customers.

Does your customer depend on fewer and fewer customers? A problem with one of these buyers can disrupt the balance of the entire chain. So always keep your eye on the big picture.

You can monitor these alarm signals closely at your existing customers. It is not so easy when you want to identify possible defaulters among your prospects. Nevertheless, this is very important, because for lasting growth after a crisis you need a reliable and lasting stock of new customers.

A proactive approach to defaults of payments can save you from a lot of misery

With a solid payment policy, you can protect yourself against defaulters and a potential risk of bankruptcy . This is how to deal with it.

1. React quickly to late payments

One unpaid invoice can have far-reaching consequences. That is why it is crucial to quickly detect and recover outstanding debts. Everything starts with a clear and duly , signed contract. The less room for dispute, the greater the chance that an unpaid invoice willbe swiftly recovered .

2. Set up a system for reminders and warnings

Late payments are not always an indication of bad faith. Mostly it is a question of a minor oversight. With a simple warning, you can remind your customer of the unpaid invoice. The chances of payment will increase as a result. Good to know: there are software programmes that automatically send reminders after a specified time.

3. Outsource your collections

Late payments can cause heated discussions between customer and supplier. An independent expert can help modulate between both parties . A professional collection agency has the necessary experience to mediate in complex late payment negotiations. They can propose creative solutions that satisfy both customer and supplier.

4. Go for an amicable settlement

Sometimes legal proceedings are inevitable if you want your unpaid invoice settled. But it is always better not to let it get to that. With an amicable settlement, you show good will towards your customer. An amicable settlement is not only faster and cheaper than going to court but it is also, intended, to retain the business relationship.

5. Give an extension for payment

An attractive form of amicable settlement can be to grant an extension for payment. The customer can pay the amount owing in several instalments, spread over a given period. In most cases aninterest amount, will be added to compensate for the late payment.

Credit insurance protects against unpaid invoices

Shall we summarise?

Good credit management is the foundation of your financial health. Remaining alert to alarm signals in the behaviour of your existing customers makes a world of difference, so does taking actions against Cases of defaults of payment.

However, very often this is not enough. Simply because the risk has become far greater and your own resilience is under pressure. Consider this: late payers or bankruptcies can undermine your own solvency.

In this case, credit insurance provides the right cover to ensure effective protection. The latter will ensure that you continue to do business in all serenity even if the face of a potential risk, such as a default of payment.

A good credit insurer:

• helps you prevent defaults as much as possible;
• monitors the financial health of your prospects and customers based on up-to-date data from over 80,000 companies in 55 countries;
• ensures that customers give priority to the unpaid invoice and meet the payment terms;
• collects your unpaid invoices;
• pays you for your goods and services, even if your customer goes bankrupt.

With the Trade Credit Insurance solution of Euler Hermes, you will have the necessary cover to protect you against defaults of payments.