Whatever sector you are operating in, if your business gains much of its revenue from a few select customers, then you are likely aware of the risks associated with customer insolvency. Losing a customer due to customer insolvency is even worse than losing a customer to a competitor because you won’t be paid for the products or services your company supplied. This guide has been designed to help businesses by explaining the best ways for companies to protect themselves against customer insolvency.
Personal Property Securities
Using PPSA, personal property securities is one of the best ways for businesses to protect themselves against the damages incurred due to customer insolvency. Personal property securities can help businesses secure payments from customers and safeguard their equipment if it risks going into others’ possession.
Spot the Warning Signs
If you are worried about your customers’ financial stability, you don’t have to wait until they have gone into bankruptcy to have your fears confirmed to you. Staying vigilant to potential warning signs of poor financial health can help businesses to protect themselves against customer insolvency. Warning signs of potential customer insolvency include:
- Changes in the payment behaviour of long-term customers
- Customers delaying payments.
- Customers only making a payment once they have been promoted to do so by your company.
Managers and business owners should stay vigilant to potential warning signs of customer insolvency. Being aware early enables businesses to change their behaviour to protect themselves against the risks associated with customer insolvency. You should also try to stay abreast of industry news to ensure you are aware of any developments that occur with your customer’s industry.
Credit Check All Prospective Customers
Conducting a credit check should be a standard practice in your business before you take on any new clients. The reason that a credit check is so important is because it is one of the most effective ways that you can safeguard your business. Aside from taking out a credit check report, you should do other due diligence to assure your potential customer’s long-term financial health. You should try and talk to other clients of the potential customer to learn more about how they conduct business and their reliability. When you have decided to take on a new client, you should pay particular attention to their payment habits. This will help you have a clear idea of how reliable the customer is and plan accordingly.
Act Quickly on Late Payments
Sometimes a late payment is due to something as excusable as a clerical error; however, it is always important for businesses to respond quickly to late payments. You should contact your customers quickly once the payment has not been made. You should try and find out as much detail as possible regarding the reasons for the late payment. Your staff should follow set guidelines on when to issue penalties for late payments. Penalties motivate customers to make payments on time and help safeguard your business against the consequences of customer insolvency.