So wouldn’t it make sense to spot your customer’s business failing before it’s too late?

There are broad indicators that can help you identify when a customer might be heading for trouble. For instance market conditions might change – a rise in the price of steel, exchange rates, new technology making current products obsolete and so on.

It is also helpful to understand why small businesses fail. However, there are some more specific and immediate indicators that can save you from unwelcome bad debts.

1. Visual check.  Keep a close visual check on all your customers. Regular visits are great for customer relations but also a chance to soak up any visual signals of your customer’s business failing. Signals could be external property looking shabby, less staff with even less work to do, stock and inventory levels looking low, a quiet goods-in bay and most potent of all a ’sense’ of gloom, a lack of a buzz. Almost tangible. But you have to visit. You can’t sense it over the phone.

2. Falling orders. A bit obvious but the process can be gradual so keep on top of customer trends. (Of course, it might be that you are being phased out in favour of another customer so you ought to know that too.)

3. Rising orders. No that’s not a typo. Watch out for rapidly rising orders. Your order of two widgets per week suddenly goes up to six widgets per week. Your customer is running out of suppliers and is leaning more on you. Avoid the temptation to take the volume, you won’t get paid.

4. Staff turnover. You always seem to be talking to your customer’s new employees. A common trait of a business failing.

5. Your competitors. It’s always worth communicating with your competitors, as strange as that may seem. At a certain level you can look out for each other. Give and take. Keep each other posted on bad debts and you’ll both benefit.

6. Product quality. Faltering product quality is a sure indicator of business failing. Don’t just follow your customer’s sales statistics, follow their products too.

7. The grapevine. There’s no smoke without fire. It’s very hard for a business to hide problems for too long. The local jungle drums start beating at some point. These days, so do the global jungle drums – the internet. Blogs and forums see to that. So keep you nose in.

8. Hard data. In the UK, for a minimal charge Companies House provides us with details of annual accounts, late submissions and so on. However as an annual process this may not be quick enough to identify business failing. Alternatively you could try Trust Online to unearth any county court judgements (CCJ’s) either current or historic. You can check either individuals or businesses. Another alternative could be Experian who also provide credit ratings for individuals and businesses.

9. Key decision maker. Your main contact becomes harder to speak to or perhaps goes missing altogether. If he’s still around, perhaps it is harder to hold a conversation. He’s more aloof or distracted.

10. Payment patterns. Regular payers become irregular payers. Irregular payers become non payers. Non payers become failed businesses.

11. Rapid growth. Your customer is on fire. His business is going stratospheric. Are you sure he has planned for his growth or is he likely to get caught out. For you as a supplier this is possibly the toughest call of them all. Who wants to reject a customer who is doing too well?

12. Discounting. Could be a proactive marketing move or the beginning of the end. Topically, Woolworths announced last week their forthcoming 50% sale. This provided the clear signal that the business was being wound up. This week that news was confirmed.

13. Ask them. Yes ask them. Perhaps “are you going bust?” might be a little undiplomatic. What about “I wanted to discuss how we could help develop your business” or similar. If you can find a soft entry to the conversation, very often your customer may open up and confess all. Or perhaps some.

In the same way that a small business needs to know when to call it a day, so do you.

Have I left any out?  Have you got any experiences of a customer business failing and losing out to a bad debt?

.