Economies are unpredictable and demand for certain products or services ebbs and flows depending on any number of reasons.
Bankruptcies in the U.S. increased to 25,227 companies in the second quarter of 2016 alone. It’s important to stay on top of corporate finances, especially in the early stages of business development and avoid ‘bad debt.’ Bad debt is money that you can’t recover — a client doesn’t pay you for work you’ve done, for example.
Even a small amount of bad debt can build up and slowly chip away at your business’s financial security. With that in mind, here are just a few of the top signs indicating your business may have ‘bad debt.’
It’s one thing for you to get a client’s voicemail once in a while, but if they seem to be avoiding your calls left and right, consider it a red flag. If business owners had the funds or a plan to pay, they would speak to you directly to avoid misunderstandings and stop the phone calls.
We all know business owners get busy, and sometimes reaching out to them by email might be more helpful. If you still can’t get a response, it may be time to send the account to collections, or if the financial situation is urgent, consider working with an invoice factoring company, which specializes in advancing you the money and working with your client to collect payment.
Flexibility is a necessary trait for all business owners. If a client forgets to pay once, or is a day or two late, you can be a little bit more forgiving.
But if you notice that the same client is late or fails to pay, it could be a sign of something deeper. While you might think you’re being helpful by extending time for your clients to pay, but you could be jeopardizing your business if it drags on, and if it’s frequent.
Remember — you run a business. You need money for your business and to pay yourself. In order to maintain credibility and minimize time between invoicing and collection, you need to be firm on your payment terms. If a client consistently misses payment deadlines, it might be best to send that for collections and move on from that client.
Change of Company Ownership
This is a sign that only applies to corporate clients, but it’s worth mentioning. If a company undergoes a change in ownership or upper management, they may know nothing about the company’s past debt and therefore feel no obligation to honor it. In other cases, the company takes on the debt with the purchase. Either way, look out for this red flag when it comes to past debt.