Bad debt is one of the biggest risks in credit control. Fortunately, there are often warning signs before a customer defaults. Learning to recognize these signals allows credit controllers to act early and protect the business.
Common Early Warning Signs:
- Consistently Late Payments: A customer who repeatedly delays may be facing financial stress.
- Partial Payments: Paying only part of the invoice is a red flag.
- Increased Credit Requests: Sudden demands for higher limits can signal cash flow issues.
- Poor Communication: Customers who avoid calls or emails may be struggling.
- Negative Market News: Reports of layoffs, lawsuits, or declining sales indicate risk.
How to Respond:
- Reduce or freeze the customer’s credit limit.
- Move them to stricter payment terms (e.g., cash on delivery).
- Escalate collection efforts sooner.
- Involve management for major accounts.
For Beginners:
Don’t ignore small irregularities. Spotting problems early is one of the most valuable skills a credit controller can develop.
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