The repercussions of insolvency are a danger for all businesses, no matter how big or how small. The UK, for example, is experiencing a rise in insolvent firms up 2% in 2017 and an estimate of an additional 4% in 2018
. This unrelenting trend is not something that happens out of the blue`. The majority of cases of insolvency show many warning signs, thus, it is possible to spot them and control the inevitable impact on your company. Insolvency is troubling due to its ripple effect on the whole supply chain, therefore, it is important to perform risk management. Factors such as securing robust business intelligence, monitoring and analysing the credit behaviour of companies are necessary steps to take to mitigate risks. So what are the warning signs?
- Track Payment Behaviour
A strong indicator of whether or not your customer may be on the verge of insolvency is their customer payment behaviour. You can assess and track their payment behaviour and conclude whether there are any questionable changes such as recent late payments, a trend in non-payments or even offering bills of exchange in lieu of payment. These indicators should bring up initial warning signs of potential insolvency, especially if the payment pattern is out of the norm.
- A Change in Orders
If you notice a change in the typical orders your customer usually places with you, then there may be a reason for it. Strategies such as overtrading with lower profit margins, smaller and more frequent orders and a permanent use of full credit lines may indicate that your customer cannot reach their usual demand. Although there may be many reasons for a change in orders, if it is combined with the other factors mentioned in this article then the likely outcome may well be insolvency.
- A Lack of Information How well do you really know your customer? A healthy business relationship would have two-way transparency. A business should also have good visibility into a customer`s financial position in order to be assured of payment on time, especially where receivables balances are large. Acknowledging the financial history of your customer before going into business with them is pivotal for risk management.
- Communication Issues
Are you conducting business abroad? Communication issues can become a big factor and a sign of potential insolvency. If repetitive, you may find that your customer is avoiding you and if you`re dealing with business in a foreign country it may be extremely difficult to manage the situation. No matter the issue, you should be able to reach your customer and have fluid communication amongst the party lines.
- Industry Performance
It is important to have one eye focused on how the wider market is performing. The wider market may be the factor which is causing disruptions in your everyday business dealings, if there is a lack of good news` in the industry this alone may well be a warning sign of worse things to come. Your customer may also be subject to the effects of the market, it may be a wise idea to see how your customer`s competition is fairing. If they are shutting up shop, then your customer could be next.
These are the 5 foremost warning signs to look out for, although not limited to. In order to mitigate potential risk of insolvency it is important to stay on top of the aforementioned problems. It may be tricky, especially for smaller businesses with less labour force, to conduct and research into all of these factors. Therefore, reaching out for help could be a wise decision to ensure the future of your company.
Cedar Rose - Keeping an eye out for you
is an established business intelligence company, which particularly deals with developing countries. Whether your company is dealing abroad or locally, Cedar Rose, with over 20 years of expertise, may have the right solution for you. Our award-winning business credit reports
can analyse and assess your customers to mitigate risks and any highlight any potential indicators of insolvency. Furthermore, Cedar Rose has recently introduced a new initiative 'Trade Rate' which allows you to personally rate business transactions. Not only does this allow for a more robust payment service but it also provides new source methods to increase the information from business arrangements. Trade Rate
is one of many benefits of using Cedar Rose, with other factors such as our monitoring services that can provide up-to-date information of a company if any unexpected changes occur. These aforementioned initiatives are key requirements in detecting insolvency and may be the saviour for your company. Additionally, for a direct analysis of risk, Cedar Rose credit reports come with the CR score
a quantitative and qualitative risk score based on more than 20 factors. CR Score is a visual indicator of the risk of a potential or current client enabling you to make an informed decision for the future of your firm. Cedar Rose`s state of the art AI technology aims to help companies mitigate risks and secure their futures for the long haul.
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*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***