For many businesses, extending credit or invoicing a customer after services are completed is simply a part of doing business. While most clients pay, some accounts become serious collection problems.
Recognizing early warning signs that a customer may never pay can help businesses take action to prevent a significant loss. Here are five red flags, along with what you can do to protect your bottom line.
1. The customer stops responding
One of the earliest warning signs is when you suddenly have difficulties reaching the customer. Emails go unanswered, phone calls are ignored and messages requesting payment receive no reply.
Delays in communication can happen in any business relationship. Still, when a previously responsive customer disappears after receiving an invoice or a reminder, it may indicate they are avoiding the issue (and you).
When this occurs, it may be time to escalate your collection efforts by sending a formal demand letter via certified mail.
2. They have a lot of excuses
Another common warning sign is when the customer repeatedly provides reasons for nonpayment. Explanations can include:
- The accounting department is behind or in the middle of its yearly audit
- A check is “in the mail”
- They are waiting on funds from another project
- They will pay next week
Some delays are legitimate; however, repeated excuses without partial payments or firm timelines often indicate the payment is unlikely to arrive at all.
3. The customer disputes the invoice after the fact
Some customers raise disputes about the invoice only after payment is requested. This delay technique may include claims that the work was incomplete, the price was incorrect or that the services weren’t authorized.
Clear contracts, documented communications and signed approvals can help prevent disputes from derailing collection efforts.
Unpaid invoices disrupt your cash flow and create unnecessary financial stress. Recognizing the warning signs early can allow you to respond before the debt becomes harder to collect. When informal debt collection efforts fail, consider legal options. Working with a legal representative can improve the likelihood of a successful recovery.