Six Early Signals of Customer Payment Problems

Even in the best economy your customers may be having financial problems that can hurt your firm. Here are some signs of trouble that should prompt you to act before it’s too late:

1. Loss of contact. Defined as two broken promises to pay. Accept one promise. The second time, ask in a direct, friendly way if this isn’t the second promise, why it’s late and exactly when you’ll be paid. Other loss of contact: NSF checks, never in, no answer, on hold too long.

2. Abrupt personnel changes. Your contact leaves. Nonpayment is blamed on personnel shifts. Always assume the worst. Say: “Let me talk to your superior or whoever pays the bills.” (It may be the boss.) Pros call daily to get the right person. If they promise to call back, set a firm schedule. No call is loss of contact.

3. Any banking change. If nonpayment is blamed on changing banks, ask for the name of the bank and bank officer. (Refusal is a red flag.) Call the bank: “I’m confirming that _____ opened an account.” Pros also ask if it’s “a satisfactory situation” (bank may have denied financing), and what banking business is being done.

4. Unusual disputes (stalls). At 30 days: “The check is in the mail.” At 60 days: “Wasn’t that the shipment that…?” Probe and question. Genuine complaints are usually prompt and detailed (invoice numbers, etc.). The vaguer a complaint, the more suspicious it is. Ask: “Why haven’t I had something on this in writing?”

5. Intimidation. Debtors sensing a non-pro calling may be rude to deter future calls. Ignore it. Stick to the business at hand: nonpayment. Keep probing. “Will you pay? When? etc.” Try humor (“Get up on the wrong side of the bed?”). If it fails, the intimidation is deliberate. Don’t be afraid to report intimidation to management. These cases end up with collectors (bosses hate intimidation, too).

6. Change in payment pattern. A regular 45-day payer pays in 70 days and only after two phone calls. Act now or the next check will come in 120 days. Say: “You’ve been great about paying, always on time. Now, 45-day payments come in 70 days. Where are we going?” If there’s no good reason (e.g., a temporary problem) it’s a red flag.

What to do when it’s already too late
Too often, management makes unrealistic demands on debtors who can’t possibly pay (“We want it all now”). The debtor then avoids talking to you at all. Why lose money, and possibly a good customer, due to a customer’s temporary, unexpected reversal?

The solution: Focus on your cash flow, not the customer’s debt, regardless of whether it is $1,000 or $10,000, by setting up a realistic payment schedule as follows:

1. Suggest monthly payments. “You owe $750. How short are you of paying the balance?” It’s hard for people to say they’re short the full amount. Suggest monthly payments and ask how much they can pay. If the figure is too low, such as $20 a month, take charge of the conversation.

2. Suggest a payback schedule. “I can put you on monthly payments but the maximum is 7-8 months at $100 a month.” Be ready for resistance: have a counter-offer of, say, $65 a month for a year. You must charge interest (use rates charged by local banks but check legal limitations). People pay back debts accruing interest faster than no-interest debts.

3. Get a note and a partial payment. On $750, get a down payment of 10% ($75). By getting a payment right away (when they come in to sign the note) you will have won half the battle. The other half: Get the first few payments on time. Once you have a note and several payments, the rest will come. On a large debt: Consider a balloon payment. On a large debt of, say, $10,000, you can take $200 a month for 18 months (includes $1,600 for interest) then a large (“balloon”) payment of $8,000+ in the last month. If, after 18 months, they can’t make the $8,000 payment, renegotiate and extend the term. You get at least some cash flow instead of none in the meantime.


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