Preventing loss from bankrupt customers

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Preventing loss from bankrupt customers

By Anna MaskerIn standard9th September, 2009

It might start with late payments, or unreturned phone calls. It might be that you had no idea there was anything wrong and you get a notice in the mail. When a customer files for bankruptcy it could have a big ripple effect throughout your organization. Here are a few tips to prevent a loss for your company:

Analyze your risk: All eggs in one basket= trouble. We all have that one gem customer that buys a lot from us, and while this steady stream of income is good it can also spell disaster if the company goes under. Do a quick sales analysis to see what percentage of your sales comes from each customer. If someone represents more than 20% look to diversify your client base.

Be proactive: Periodic credit checks may help to identify problems. The $100-$200 you spend on a credit check through Experian or Dun & Bradstreet may be pennies compared to not collecting on some of your bills. Make sure that you monitor your Accounts Receivable Aging reports and you set limits on the amount of credit you extend to your customers.

Communicate, communicate, communicate. Before any negative information shows up on your customer’s credit report you may find that keeping in touch with your client can help you see red flags of problems before they become your problem. On the upside, you may provide a solution to keep them from going under, or at least you can take preventative measures like putting them on a cash-only basis to ensure that you are not at risk.

Don’t be afraid to cut them off. There, we said it. Yes, you will lose sales—you may even have to lay people off. A non-paying customer, no matter how big they are, is bad news. You didn’t get into business to run a charity and a non-paying customer is sapping you out of both cash and profit. Try to work with them but stand your ground.

Get creative. If you are owed a lot of money, you may need to think outside of typical 30-day payment terms. Installment plans make a debt easier to pay off, especially if a customer is struggling. Beware, though, since this opens you up to risk, and you should balance your cash needs with the risk of not getting paid the full balance. This may be your only option if the customer is on the brink of bankruptcy to recoup a piece of what you are owed.

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