5 Top Red Flags to Identify Bad Debtors

With the uprising trend in our economy, it relatively doesn’t mean that companies should take financial risks lightly. Whether, good debt or bad debt any kind of debt is worrisome for companies in all kinds of sectors. It is important for businesses to be proactive against bad debt, to avoid potential financial risks that can be encountered over a period of time. When it comes to insolvencies, it is likely that some kind of indications were highlighted, especially if it involves bad debts. Companies might find certain alarming warnings that usually go unnoticed, creating a margin for bankruptcy. Identifying and combating these warnings is vital for companies to steer clear of bad debt and their damaging impact of financial distress. In the below infographic visual design by our infographic designers are 5 red flags identified for eliminating bad debtors:

  1. Accepting first time orders: New customers with large orders might disguise themselves as potential revenue generating blocks, when in actual, they are flashing a red flag. Businesses should stress on performing the necessary credit checks to ensure that the debtor is armed with the appropriate financial statements that should be received before stated deadlines and usually display an above-average performance. Companies should look out for key details such as on-time delivery payments, or delayed payments and this will guarantee whether the debtor is reliable and trustworthy.
  2. Late payments: is the debtor going through a rough patch while trying to make payments on time. This is a serious indication that companies shouldn’t encourage this kind of behaviour and inquire immediately before matters get worse. It is important to turn focus to key elements such as, is the debtor only performing punctual payments when he is reordering products, requests for changes in the payment terms maybe because they are unable to comply with the terms, or probably they have stopped responding to the initial credit agreement drawn between you and the debtor. All these reasons can lead to the debtor suffering from cash volatility.
  3. Customers requesting for new financial arrangements: businesses will treat this red flag casually, because most of the time when a debtor changes a bank or ventures for new financing opportunities, it probably means they have plans for expansion. However, companies should be cautious, because it could also mean they are fuelling large losses.
  4. Surge in Credit Checks: this can also be treated casually by some companies, thinking that debtors might have a possible plan for growth and are experiencing constant credit inquiries. However, it could also mean that the debtor is suffering from the inability to pay its current creditors or requires covering substantial financial losses.
  5. Too many Excuses: you might find the debtor framing up excuses to delay payment schedules due to external causes such as the computer/telephone system weren’t working, or maybe the company is undergoing an audit, important signatories aren’t present, or the company is re-structuring. Whatever the excuses maybe it is essential for the company to probe into the issue and demand for an explanation promptly.

 

The above inforgraphic visual by our infographic designers has very cleverly displayed factual points in a very creative and captivating manner. Our inforgraphic design team has provided a crucial insight into how companies can avoid bad debt and from the impact their financial distress causes.

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