Signs a Business Partner May Be in Trouble

Most small businesses learn to live with a certain amount of commercial credit risk in their lives. Yet it’s still a nasty surprise when a trusted customer with an excellent payment history goes belly-up – and leaves you holding the bag.

Performing a thorough business credit check on potential customers is standard procedure for many companies, but running regular credit checks on existing relationships can also be a wise move. A business credit report can provide the insights – and warning signs – your small business needs to help recognize problems before they spiral out of control.

Even so, there’s something to be said for including old-fashioned common sense as a risk management tool. Pay close attention to the details of your customer relationships, and you might notice little changes you’d otherwise overlook. Put enough of these details together, and they could tip you off to potential credit-risk issues.

Here are some examples of the subtle signs that may indicate a business is under financial stress: Tweet This

1. Senior Management Shifts

Vendors should take notice if a customer abruptly replaces its top leadership. Sometimes this turnover is simply a matter of clashing personalities or changing business priorities. If the move takes you by surprise, though, it could indicate that all is not well. Depending upon the nature of your relationship with the past leadership and new management, you may be able to get more details to put your mind at ease. Even if the situation remains a mystery, pay close attention to the status of top staff in the following months.

2. New Payment Patterns

Are customers that typically pays within a week or two suddenly taking a month or more to pay? Are they paying on an irregular schedule or in lump sums when they weren’t before? Even if the new payment pattern meets their contractual obligations, it can be concerning when established customers changes the way they pay you. Consider reviewing an updated version of their business credit file for signs of financial distress.

3. A New Address or Phone Number

Businesses move all the time, especially when they’re growing fast or opening new locations. But companies with shrinking revenues may also seek to cut their rent payments. Of course, moving to avoid skyrocketing rents can also be a financially responsible move. It’s up to you to decide on management’s motivations for leaving the old location.

4. Changes in Attitude

What do your sales and support staff notice when they meet with a customer? Do normally cheerful employees suddenly look worried or downbeat? Are familiar faces suddenly missing? Does the customer’s office look thrown together and disorganized? Ask your employees what their gut feeling tells them about a customer’s financial status, and take their input seriously.

5. Unexpected or Unusual Business Disputes

When a business customer suddenly complains about the quality of your goods or questions your support policies, it’s natural to blame yourself (and your team) for the problem. Yet it’s also possible that the customer knows they’re in financial trouble, and they want to buy time with disputes that allow them to get away with slow or missed payments. Are their complaints legitimate? If not, it may be a sign of trouble ahead

None of the situations above guarantees that your customers are going to fall short on their financial obligations. The more of them you encounter, however, the more important it is to look closely at their business credit scores and ratings in order to make an informed risk-management decision. Dun & Bradstreet offers a variety of business credit monitoring tools to help you judge a customer’s financial health. You don’t want to rely solely on your gut instincts, but ignoring them can be dangerous.

Photo Credit: kirsty, Twenty20