Top warning signs of business who is in a financial trouble

Warning signs of a business in financial trouble

All businesses can and most likely will experience cash flow problems at specific points in their business journey.

Fortunately, these are often only temporary setbacks, and the majority of businesses that have robust credit control procedures in place continue to operate in a financially sound way (often using business debt collection as a means to successfully collect on overdue invoices and keep cash flow flowing).

However, for some companies’ cash flow problems due to various reasons can lead to business closure, and if this company has outstanding invoices with you, you’re now also negatively affected, and your cash flow is impacted.

So, how can you avoid this, and what are the differences between a company going through a temporary rough patch and one that faces no return – we explore these areas and more below.

How to tell if a company is in financial trouble

There are certain red flags to be aware of when working with customers to understand better their financial position and ability to pay.

Of course, some are more obvious than others, and can include:

Payment patterns – is there a continuing pattern of late payment? How often does this occur? Is it past the 30-day period but before 60? Do you have to chase continually? Is this the first time late payment has occurred, making it unusual and out of character for the business? The best way to understand more is to speak to the company directly, particularly the person responsible for paying the invoices. There may be a rational reason, and payment terms and a payment schedule may be an option to ensure your invoice is paid. Alternatively, this could be a red flag and a warning sign that the company is facing financial difficulties due to its habit of late payments.

Constantly struggling to meet their financial obligations – is the company paying out more than they’re taking in? Is the frequency of defaulting on bills increasing? Is the company taking on more debt to cover everyday operations?

Declining income – if you notice that a business’s reporting profits are consistently declining, this is a sure sign that they are facing financial difficulties. Companies in distress will be facing a decrease in demand, pricing pressures, increased competition, and more.

Hearsay, have you heard about businesses/certain companies you also work with losing business and customers? Could this lead to financial difficulties and invoices not being paid/paid late? How will you be affected?

No response – if you have sent your invoice and there is no response. You have sent reminders, no response. You have attempted follow-up calls, email communication, and more, and there is still no response; this is a big warning sign that something isn’t right and is a sign a company is going under.

Unhappiness – if a business is in financial distress, it is very unlikely that business owners will be happy. This is the same for employees; for example, is the company making sudden cuts to their staff to make savings? Are staff starting to leave in volume? Are they selling their assets as they look for short-term cash injections?

Small Business Debt Recovery

Financial distress impacts all company operations, profits, and more. The more information you have, the more informed decisions you can make, allowing you to take appropriate action to protect your cash flow.

To help avoid running into problems, it’s essential that you:

Carry out appropriate credit checks – all credit checks are based on historical data, however, it will give you a clear picture of how the company is run, if they pay their bills on time, and if there have been any past issues you should know about.

Review financial statements – check any management changes and if there is a frequent turnover. Check for accounting irregularities and any non-compliance.

Check online reviews – often, people vent their frustration or annoyance regarding companies online, so carry out online checks to see what others are saying.

Implement strict credit control procedures – taking proactive steps to reduce debt from building up. Working with an experienced debt recovery agency can help you manage your credit control processes and use their expertise and skill to collect outstanding invoices.

Seek professional advice – debt recovery agencies help businesses successfully recover outstanding monies from overdue invoices. Don’t write off bad debt or leave it for another day; take action now.

Small Business Debt Collection

At Direct Route, we’re committed to helping businesses stay on top of their credit control processes to reduce the risk of late payment and, indeed, no payment at all.

We work effectively and efficiently to provide a debt collection service that is second to none. Collecting outstanding invoices successfully, we ensure business relationships remain intact, taking the pressure off your teams and giving you back the most valuable element of time.

If your overdue invoices are beginning to add up, contact a member of our team today and see how we can help you.

Call +447860197476 or email memberbenefits@directroute.co.uk

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