No one needs to begin an article in 2021 that introduces the concept that these are uncertain times for businesses. Given the unstable state of the world, what might it mean for your business when you rely on clients and customers for money that’s owed or promised, and everything starts to fall through? What can you do to look after your own company and not get pulled down as others sadly go under?
What a collapsing business looks like
It’s hard to believe that businesses we have been working with for years are in precarious positions where a collapse is possible, but as the last eighteen months have taught us, no one is safe from the changing world. Even huge names, companies that have been strong for decades and shaped our landscape, have been seen to come down with a bump.
Keeping alert is key, and looking out for those warning signs can make the difference between being at a safe distance, and going down alongside.
Top of the list to look out for is when clients miss a regular payment. Maybe it is just a glitch, and everything is fine a week later, but maybe it’s not and you should take care to keep an eye on it.
Customers who are still making payments but not as smoothly as once was the case might be on the edge, scrabbling each month to make it through to the next, but at least they are treating you with respect and getting it to you as soon as possible. Those who are missing payments and offering little in return except for promises are a greater worry and have probably already reached a stage where any further business with them would be a mistake.
A lot comes down to understanding the client and your personal relationship with them, but if your gut starts to tell you that they’re no longer reliable, then you should trust that feeling. Stop extending any credit to them, and strongly consider not starting any new projects.
Communication is key here, though. If they are speaking honestly about the situation, it’s bound to engender more trust with you – and this is only right. Ask how high up their priority list you are, and keep the situation in the open.
It’s always nice to be supportive, but remember that you have bills to pay, too. Don’t allow your natural inclination to care and forgive override common sense.
Lack of communication
Silence is a huge red flag. Clients and customers that are late in paying and avoiding speaking to you should be considered a significant risk.
Of course, it could be that they are genuinely busy, and it’s been a run of bad timing, but again, trust your instincts. Communication is easy, and someone who cannot find the time to email you back after more than a week is either very ill (it does happen), or obviously avoiding you.
First, do give people the benefit of the doubt and try to find out if there is a legitimate reason for the communications blackout, but don’t fall to a string of obvious excuses.
If you believe someone is genuinely avoiding you, it’s prudent to stop working on any related projects immediately, if possible. Leave emails or messages indicating the situation and wait for them to get back to you.
Sadly, if they don’t, it is likely to lead to a relationship that breaks down completely.
Slow down of orders
A company that was once keen on your services that starts to drop off the level of work without explanation can often be a sign of financial difficulties. Of course, there are plenty of other legitimate reasons (including, sadly, that they have found a superior service elsewhere), but it’s definitely one to raise interest.
There’s little you can do with this one, however. Assuming that they are all paid up to date, and there are no contractual obligations outstanding, they are free to use your services less (or not at all).
As is typical, communication is key and a quick personal phone call can often clear up issues in this instance. If the drop in orders is due to financial issues, then showing understanding is more likely to mean that business will pick up for you once they are back on their feet.
Reliance on a client who suddenly slows down their regular business can be very hard and is one of the key reasons for spreading your services across multiple customers at all times.
Lots of company restructuring
While this happens less with SMEs, larger companies in financial straits will often turn to restructuring to try to limit the damage. Multiple restructuring events in a short space of time is often an indicator that business is struggling and it may be worth looking at your reliance on this particular firm’s custom. This is especially true if the restructuring also comes with a wave of redundancies.
Unfortunately, restructuring also often means that trusted lines of communication are closed, as relationships are passed to different personnel. A single reshuffle shouldn’t be enough to raise the alarm, but too many changes could be a good reason to keep an eye on this client.
What to do if you suspect a client is folding
In every case, communication is always the best first move. Being suspicious of a client’s situation is very different from knowing definitively that they are in trouble. If you have a good relationship with the top management or directors in a firm, then an understanding chat may be more helpful to them than you think—friends take priority over acquaintances every time. Even if not, a quick call to an accounts department can often either reassure you or confirm your suspicions and, in many cases, will expedite any outstanding payments.
Should it become obvious that a customer is close to folding, then it’s important that you look to your future and move your reliance away from them. Make plans with the assumption that outstanding invoices are unlikely to be paid, and restructure jobs prioritising those companies that are still first-class payers. Remember to put your business first, and often with an early warning, it’s possible to position yourself such that taking a hit isn’t as devastating.
A desire to help can often mean that you offer more than you should. It’s great to be accomodating with payment plans, and a gentle reassurance that you understand their predicament, but don’t ever put yourself into a position where the outcome could be potentially worse than it already is.
Legal intervention – what to do if you are owed money
If you are owed more than £750 by another company then there are legal solutions for you whereby you may be able to force the situation to reclaim your money. We’re not lawyers here at Ensign, however, and can offer no assistance here. Seek legal advice and good luck.
How Ensign can help
The more accurate you are with your project financial calculations, quantity surveying, and project management, the more likely it is that you will be able to both spot problems, and react in a timely manner to anything to help ensure your business survives the bump in the road. Our software helps you manage and report on all this collected data, ensuring that you are in the best position possible should stuff hit the fan.
Why not arrange a free demo today?