How to identify potential customers for bad debts?

To secure your cash flow, it is important to do your homework first and make sure it is right for your potential customer loan. For both new and existing accounts, there are many tools available to complete your diligence and qualify your customers before doing business with them.

In fact, you shouldn’t just limit your hard work to your new customers; Regularly checking the credit health of your existing customers can help you avoid unpleasant surprises on the road. For new customers, such tools include online research, the information provided by credit agencies, and business references.

For existing customers, finding warning signs in their behavior can be a gold mine of additional information in this regard. Having a system that uses one or more of these tools will help you enhance the chances of debt recovery, and save you time and money in the long run.

1. Research online

The internet knows everything. Almost good! Gathering information online is always the fastest and most effective way to find out the facts about anything, including businesses. When a potential customer contacts you with a request for your interest and credit in your product. It can run at any cost. With a simple search engine query, you can verify publicly available information such as business name, occupational details, address, and contact details. Additional documents, such as additional historical company information, satisfaction fees, and certificates, are available for a small fee. If you find details you are unclear about, you should think twice before providing goods or services before payment – how will you track your customer for bad debt collection if they fail to pay?

Additional sources of information are presented by company and industry news. Again, a fast internet search can be important here. Have there been recent court cases that could indicate a credit record or credit ineligibility? Some other mundane issues can be avoided for debt recovery and should also raise questions on your part:

• Are the companies re-recruiting employees, or is it currently being sold?
• Is their industry going through a major recession, or perhaps they have lost their biggest customer in the competition?

Such a situation can indicate problematic cash flow conditions, and, while you may not automatically reject a sale on credit, more appropriate hard work may be required. In the case of a publicly-traded company, company accounts can provide more information about your prospect’s financial health and cash flow status. For example, an unusually high debt-to-equity ratio may indicate an inability to generate enough cash to meet current debt obligations.

2. Credit agencies

The 3rd party debt collection agencies can provide comprehensive risk assessments based on the company’s constitution, financial stability, payment habits, credit history, and legal integration. This information is obtained in part from archives maintained by authorities and in part from research conducted by the credit agency. You can easily order a credit check on a business or personal online: all you need is the business name or occupational details.

A professional credit assessment can pay you back a few hundred dollars, but it’s an excellent investment at the bad debt collection agency that will give you a clear picture of your customer’s potential payment method. If you don’t want to spend time digging and analyzing all the information yourself, this tool can save you time and be worth spending to secure the payment of invoices worth thousands of dollars or more.

3. Trade references

As you explore new possibilities, your network can become your most trusted partner when it comes to the bad debt collection agency. Especially if your industry is tight or your potential customer is local in your area, other business owners may have dealt with them in the past. A quick round of calls in your contacts will be able to easily establish your mind according to the credibility of the new customer.

If you find yourself working with a customer who has little information about your network, you can ask them for references from a former or current supplier. Again, a simple phone call from the 3rd party debt collection to former creditors should be able to confirm the information provided, and whether the potential customer pays the invoice on time.

4. Warning Signs of current customers

For current business, in addition to the tools we’ve already discussed and which you still need to implement, there are other warning signs that can alleviate your financial difficulties. When it comes to paying bills, actions speak louder than words, so you should focus on yourself. Bad debts that may indicate current or upcoming cash flow issues often include late payment patterns, extensive changes to the management team, or sudden difficulty contacting a customer. Serious personal problems, such as a guarantee of court involvement, can also occur in a client’s business life and affect their ability to pay. Frequent requests for duplicate documents, such as invoices or proof of delivery, also indicate internal disturbance and confusion, and should not be ignored.

Try to pay full attention to these debt recovery signs. While one-much fun may not mean much, two or more red flags may indicate a difficult time ahead. Keeping notes, along with your customers’ credit history, can provide an effective system for keeping notes, and can often be accomplished directly through your CRM software. Allow others in your company to access these notes, especially sales and customer service. You may decide to take three-strike approaches: After three broken payment promises, investigate the real causes of the problem so you can take timely action and resolve it before the problem occurs.

What to do if red flags appear?

So, if you or your team raise too many red flags tied to a customer’s account and worry that they aren’t able to pay their invoice, what should you do? Before making tough decisions and before stopping delivery or rejecting the terms of credit with the help of a bad debt collection agency, it is important that you find out the truth about the situation. Your best bet to avoid misunderstandings may be to pick up the phone and talk directly to the customer. If a prospect shows what a good credit score looks like, working with a new customer always emphasizes some degree of uncertainty. Before you proceed on extended credit terms, you can test the customers by demanding payment on delivery or payment by installment, depending on your business model.