Broke businessman showing brown leather empty wallet. Business concept- finance and poor economy.

In this fast paced business world, cash flow can make or break the whole operation. Early warning signs tell you a company or client may be headed toward bad debt. While business today will likely require extension and use of credit, knowing the early warning signs of bad debt can help you avoid a lengthycommercial collections process.

  1. In the middle of changing banks or receiving new financing. Although it is normal for clients to change banks or receive new financing, this is a very classic and common early warning sign of potential bad debt. If a debtor company is getting new financing for a major expansion, then this could be a good thing for future business. However, if new financing will cover large losses, then their account should be watched very closely.
  2. Loss of an important customer Most companies make a majority of their revenues from a small number or percentage of their customers. Therefore, the loss of a very important or loyal customer could severely affect cash flow and the ability to pay invoices. Also, if a major customer changes to a competing supplier it can mean the company is now in for potential losses, as well as heightened competition in the market. It could also be an indicator that their products or services are no longer as competitive.
  3. Loss of an important employee or Manager Depending on the employee, this statement could be catastrophic or just a normal day in business. In some cases, the departure of a key employee who is the actual brains or face behind a company can ruin the entire venture.
  4. Being sued or receiving a Writ from another supplier A Writ can say a lot about the financial situation of your customer, so receipt of one should be considered a potential warning sign for bad debt. Some lawsuits are minor and of little consequence to your client’s business. However, it could be a much larger and complex case. Make sure to investigate why the client is being sued to better understand whether this is an early warning sign of bad commercial debt.
  5. Mail Return Now and then, companies go out of business, but they usually don’t put the same energy into announcing their closing as they do their grand opening. One early sign that a company is now defunct appears with regularly returned mail. While returned correspondence could simply be post office error, mail returns should be investigated right away to identify a potentially bad commercial debt.
  6. Messages not returned Actions speak louder than words when it comes to bad commercial debt. When a customer dodges your calls, it is time to take a closer look at possible warning signs for bad debt. Keep in mind, businesses that fail typically have many creditors and it doesn’t take long for assets to evaporate.

When you run into these warning signs for bad commercial debt, contact the experienced commercial collections attorneys at Smiley Law.

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