4 red flags: clients’ behavior before becoming debtors – and recommendations for how to react
A client often shows typical behavior that indicates the probability of this client becoming a debtor. When you know how to identify these red flags in behavior, you can act in a specific manner to increase the possibility of the client paying your invoices before becoming a debtor. It might seem tricky that a agency is giving recommendations about how to reduce the probabilities of a client becoming a debtor – but we believe in justice and your rights as a company of getting your invoices paid. After all, it is only fair to be paid on time for a delivered product or service. We do believe that after a certain point, the best solution is to hand over the case to a specialist in debt management to ensure the full collection of the debt. In this blog, you will learn all about the four common red flags in behavior of customers who could become debtors, and our recommendations for how you can act accordingly.
A change in the communication pattern
Our experience has taught us that a change in the communication pattern of a client could be one of the first ‘symptoms’ of becoming a debtor. If, for example, you used to have contact with this client every two weeks, and all of a sudden you only have contact once every two months, it could be a clear indication of a client taking their distance. This is often accompanied by a change in their tone of voice. If you notice a change in the communication pattern with the client, it may be something to worry about.
Our recommendation: to keep a clear record of all contact – both phone calls and written communication such as emails – you have had with your client, including the specific date and time. This way, you can keep track of the frequency of your contact. If you notice a significant change, you can kindly ask them about the reason for this changing pattern. If it turns out that there is nothing to worry about, at least you gained something with staying in touch with a valued customer!
Postponing or avoiding payments and payment talk
This red flag is pretty straight forward. If your client is constantly postponing the payment with typical excuses, or if they are avoiding talking about the payment at all, it is an obvious indication that the client could become a debtor. A recurring ‘Sorry, I am so busy right now, can we talk next week?’ when you mention the outstanding invoices is the most typical red flag of clients becoming debtors.
Our recommendation: prevent postponing payment talk by finding a way to talk about the invoices in a short and efficient way, so there is no room or need for postponing it. By doing this, you can get higher in the priority list of the accounts payable department or responsible before it is too late.
"When you detect any change in your client’s behavior, analyze the situation and take action before it is too late"
If your customer is changing their pattern in purchasing, or if a customer is purchasing something very deviant from your normal sales patterns, this is something to take into consideration. Unusual orders could definitely be a red flag. To give an example: a client has ordered product A of €1,000 every month for the last four years. Then, the same client orders 50 items of product B with a total value of €35,000. This sudden change in their purchasing pattern could be a possible indication of the client becoming a debtor. Of course, this is not always the case, but in our experience very unusual orders can be a signal of a customer not paying your invoices.
Our recommendation: to prevent the invoice of an unusual order becoming overdue, we recommend you to contact your customer once the order is placed to immediately discuss the payment method. It is strongly recommended to ask for an advanced payment in these cases. Be extra careful when your client is affected by external factors (see the next red flag) or when they are at risk of bankruptcy.
It is a fact that many businesses and individuals nowadays are being affected by the crisis resulting from the Coronavirus. This is an example of an external factor that has great influence on the cashflow of the majority of companies and consumers. Of course, there are always external factors that must be taken into account. The effect of these external factors is different for each industry and each client and therefore must be analyzed for each customer individually, because it can be a red flag for your client becoming a debtor.
Our recommendation: analyze, as much as possible, the economic situation of the industry in which your client operates so you have an overview of what to expect. You want to be able to estimate the financial health of your client, because collecting a debt from a bankrupt company is practically impossible. Do you have a client in a socially or economically unstable sector or region? Discuss the payment method beforehand and try to make agreements for your financial relationship.
Be vigilant and anticipate the behavior of your customers
What do these four red flags have in common? They all indicate a change in the behavioral pattern of your clients. When you detect any change in their behavior, analyze the situation and take action before it is too late. Do you recognize any of these red flags with your current customers? Are you hesitant what to do and would you like some advice?