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How to spot a supplier or customer in financial difficulty

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We can help with serious company debts, HMRC and creditor pressure, VAT/PAYE/Tax arrears, cashflow problems and raising finance.

How to spot a supplier or customer in financial difficulty

Reviewed: 19th April 2017

If you think a supplier or customer is experiencing financial distress, it is important to find out as much as possible about their situation, to prevent it having an adverse effect on your own business.

Spotting the signs of financial difficulty early on allows you time to readjust and reorganise your sources of supply, or to understand your options should a customer go out of business. The knock-on effect when you lose a business connection like this can be significant, particularly if a principal supplier or key customer is involved. 

So what should you look out for, and how can you protect your own business?

These are some of the early signs that your supplier/customer has financial problems

  • They avoid your communications, or are more guarded when you contact them
  • Payments are made late, when previously there was no history of default
  • The company is not expanding as you would expect – maybe they are using old technology, or selling assets with a view to streamlining the business
  • Customers are requesting an extension to their credit terms
  • County Court Judgements have been made against the supplier or customer
  • Company accounts have been filed late
  • Directors or other high-level staff are resigning
  • The quality of supplier services has fallen

Dealing with credit risk

The inherent risk of offering credit to your customers can be mitigated with a strong credit management policy. Performing credit checks on your customers, not only at the beginning of your business relationship, but at regular intervals, help to keep abreast of any noticeable decline. 

Other useful policies when dealing with credit risk include presenting clear terms of trade in all of your contracts. In this regard, terms and conditions might include: 

  • Your right to charge interest on overdue payments
  • The fact that ownership of goods only transfers to the customer once final payment has been received
  • The obligation for customers to contact you immediately with any invoice queries or problems, rather than waiting until the payment is due

Request information from Companies House

It is also possible to find out valuable financial information from Companies House. You can examine a company’s last set of accounts, find out whether they have sold any business assets and if the proceeds have been used to pay trade creditors – a common sign that cash flow is an issue.

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