Monday, Jun. 17, 2019

3 ways to spot an unreliable business partner

By COFACE · May 15, 2017

Do you trust all of your clients to pay their bills on time? Whether you're a SME just starting to export or large enterprise with years of export experience, clients can be financially unstable and you won't have any idea. You might continue to supply them goods or services while they still have unpaid invoices, and the amount they owe your business continues to rise.

If they continually put off paying you, it's a clear sign that they're becoming financially untrustworthy, and you might need to reconsider how you do business with them. To protect your business against these types of clients, take out trade credit insurance from Coface. To learn how to spot when one of your clients is becoming a financial risk, read on.

1. They constantly ignore your credit payment terms

Your credit payment terms are your first line of defence against late payments. You can offer slight discounts to businesses that pay on time, and you can give your expected payment time. This is a standard way to ask your debtors to fill their invoices, but some of them consistently ignore your terms, even after discussing them with you.

For example, if you ask a debtor to pay their invoice within 30 days and give them a maximum of 45 to complete payment, but they take far longer than seven weeks to get you the money, they are clearly not taking note of your terms.

It's unlikely that they're doing it out of negligence. Rather, they're taking time to pay their debts because they don't have sufficient working capital to remain financially stable. The longer they take to pay invoices, the more they are relying on sales, and the less financially stable they are.

2. They stop replying to your correspondence

One clear indicator that a client is becoming less reliable, and that they might need to be approached by a debt collector, is that they stop replying to your correspondence altogether. A lot of the time, people who owe you money will accept your calls and reply to your emails because they'll want to assure you that they know what they have to pay, and they're doing all they can.

However, if they've really run into financial difficulty, they might completely ignore all of your correspondence. If they stop picking up your phone calls or replying to your voice messages and emails, alarm bells should start ringing.

One way to avoid this doing your research on the background of a business before dealing with them by asking for trade references. However, a better way to find out about a business is to obtain mercantile reports as they're unlikely to provide a reference from a business they haven't paid.

Your clients might have a history of missed payments, so check them out before working with them.

3. They take longer than the national average to pay their invoices

Internationally, it takes a business 6 days past the due date to pay their invoices, according to research from Market Invoice. Of course, it's only an average, so there are many that pay on time. In Australia, however, businesses take a lot longer.

Dun & Bradstreet research suggests businesses take an average of 14.4 days past the due date to pay their invoices. Bigger businesses take a whopping 18.2 days. Market Invoice reports that Australian businesses are the slowest in the world for paying their invoices.

If your debtors are taking longer than 15 days past the due date to pay their invoices, you should be wary of their financial situation. They might not be stable, or able to pay your invoices at all, and trade credit insurance could be your only option.

To talk more about how Coface can help your business to remain financially stable, even when your clients are not, contact our team today.

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