A lot of modern businesses do some or even most of their business on credit, meaning that customers don’t have to pay for their purchases, at least not in full, upfront. While it would be nearly impossible for many businesses to operate without extending credit, many are guilty of giving credit to all the wrong people, and they suffer greatly for it.
As a business owner, it’s incredibly important that you are selective about which clients you lend credit to. Lending to the wrong people too many times could cause your business to have serious cash flow problems.
As such, you need to not only thoroughly credit check all people whom you are considering lending credit to, but you also need to be aware of the common “red flags” that indicate a customer isn’t likely to make good on his loan or that he’s likely to pay late, if he pays at all.
Some of the many red flags to look out for include:
l Going through an unpredictable transitional phase in the business plan
l A history of late payments with other creditors
l Serious illness or a recent death
l A recent move
l A history of bankruptcy
l Hard to get in touch with
l Signs of cash flow issues
l A history of slow invoice approvals
l A history of partial payments
l Lots of recent credit inquiries
If you notice these kinds of checkered marks on a potential client’s past, this is definitely not someone you want to extend credit to.