Personal Visit to Customer
A large number of businesses would not think twice about visiting a customer in an attempt to gain a sale, however, that same business has to think twice about visiting the customer to talk about a debt. As is the way, the salesman is usually reluctant to visit the customer in a debt capacity (the customer they practically guaranteed would never default). I agree that the salesman is not best suited to this role, however, the salesman is well positioned to spot a downturn in a customers business. As such, salesmen should be 'strongly encouraged' to adapt their senses to looking and listening for emerging problems. Whatever the size of your business, there is a constant need for senior supervision of your debtors. When large accounts (large to you) appear to have payment problems, senior staff must assess the potential damage. If that damage is significant, now is the time to make contact with a senior member of the customers staff.
There should not be a problem with contacting the customer at an early stage. After all, if there is an arrears situation it is quite clear that a lack of cash flow is responsible.
When you talk to the customer, you can say that it was about time anyway that you went to see them, and this moment seems like a good a time as any. Credit Review
Built into your system should be a periodical credit reference check on your existing customers. The purpose of this action is to allow you to review your customers financial position, and ultimately your terms and conditions of sale in respect of that customer.
You need to evaluate two area's when deciding who you vet, and how often. One area is whether the account is High Risk – Average Risk – Low Risk. The other area is the amount of credit taken by your customers.
An average risk customer with an average balance should be vetted once or twice a year (with one of those dates coinciding with the availability of the latest published accounts). A low risk customer with a low balance (with no prospect of changing) who has traded with you 'for years' may not warrant any checks, ever. You may also decide not to vet a customer who has a low balance, but a high risk. You must decide who and when.
Further, if you wait for your customer to request a large order and then decide to check their current financial position you may have to offend. However, if you are prepared, you may be able to creatively find a solution.
If your customer is a limited company, ask them for a copy of their published accounts each year (why pay for this information when your customer can provide a free copy).
Consider, 'Pareto Analysis'. This is the name for the '80/20 rule'. The general rule in business is that 80% of your sales will come from 20% of your customers. In the alternative, 20% of your business will come from 80% of your customers. So it figures that most of your probable risk is with a small element of your customers. The solution is to at least vet this element regularly: it is unlikely that any one customer in the 80% of customers category could cause you a financial crisis.
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