Business | Finance
When Did You Last Check Your Customers’ Credit?
You should conduct annual credit reviews on your long-time customers
If you extend credit to your customers, how long has it been since you’ve done a credit check on your accounts?
If it’s been more than a year, it’s been too long.
Years ago, one of my major clients got into financial trouble. When the firm filed bankruptcy and shut down, I was one of the thousands of unsecured creditors.
I’ll never see a penny of what the company owes me. But it could have been worse.
I was paying attention to what was going on with the company and was aware that fewer and fewer suppliers were being paid. Consequently, I took steps to reduce my risk: I terminated my contract and stopped working for them when the amount due reached the maximum I was willing to lose.
Just because a company has paid its bills on time in the past doesn’t mean it will do so in the future.
Whether you realize it or not, your own creditors regularly check your credit and may adjust your credit limits based on what they find. You should be doing the same with your customers.
It’s a good business practice to do a full credit review of every customer at least annually and always be on the alert for signs that a customer is in trouble.
Some red flags include:
- Slowdown in payments
- Increased returns of merchandise or complaints about service
- Difficulty getting answers to your payment inquiries
- Good employees leaving
Even a sharp increase in orders could signal trouble.
Companies concerned that they may lose their credit privileges may try to stock up while they can.
Something else to monitor is a major change in your customers’ product line(s) or customer base. These are issues that could affect their cash flow and ability to pay.
Most customers understand routine credit reviews and accept them as a sound business practice. A customer who objects may well have something to hide — and that’s something you need to know.
Thanks for reading. A version of this article was originally published on my site at CreateTeachInspire.com. You can reach me here or email me at [email protected].
Here’s a little more about me:
I’d love to connect with you! May I send a brief inspirational message every Saturday morning? Visit CreateTeachInspire.com/saturday to receive messages like these:
