You’ve worked hard to make a robust business model but it’s all dependent on one rule, common to for-profit businesses: prompt payment from your customers.
When trade relies on this exchange of goods or services, no business is an island – and the financial difficulties of another company can have a domino effect on you.
While it might sound like enough to send you into a tailspin, it rarely happens without warning. Here are three distress signals to look out for:
1. Late payment trends
Credit bureaus collect a myriad of ‘positive’ and ‘negative’ data every month, and businesses can access these trends to assess the reliability of organisations they want to trade with. Negative data includes court judgements or payment defaults, while positive data focuses on how businesses pay their suppliers. If you know a company is slowing its repayments and has stopped paying their phone bill, for example, you can take steps to protect yourself.
2. Employee lay-offs
It’s not all about how fast people pay you. Internal restructures, such as significant staff cuts, can be another good indicator that a company might be facing financial strife. Keep your ear to the ground and be sure to follow up any rumours with credible research. Once you’ve got the facts, you can take the appropriate actions to reduce your risk.
3. Know the industries at risk
By the nature of business, some industries are more exposed to risk than others. For example, the construction industry has a dependence on a long supply-chain of material, so it typically pays late and faces the highest level of insolvencies. Knowing the payment context of your customers means you can interpret – and reduce – your risk more accurately.
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