It is important to watch for signs of customer financial trouble to protect your company. This is especially true if your business’ revenue primarily comes from a few customers whose financial problems could then become your own.
One way to assess a business customer’s financial health is to review their financial statements for profitability, sales and cash levels.
When a customer’s financial statements aren’t readily available, there are other potential telltale signs of financial stress. Is the customer delaying payment by errors on checks, lost invoices, failure to return phone calls, etc.? Have there been unexpected, unexplained resignations of key personnel or layoffs? Is your customer’s business part of a declining industry? Or has your customer sold business divisions or assets without logical explanations?
Any of these signs can indicate problems. Take measures to know your customers and keep lines of communication open. Diversify your customer base among different industries to protect yourself.
