Whether you’re selling to individual consumers or companies, your business’s cash flow and, ultimately, your livelihood will depend on your clients paying on time.
When they fail to meet their obligations, you’re faced with the unpleasant situation of addressing overdue invoice payments, including listening to poor excuses and empty promises or even getting the silent treatment.
At the same time, you’re probably wondering if there were signs, whether before or during your business relationship with them, that could’ve alerted you that the client in question won’t pay their invoices on time.
The truth is that there probably were some indications, and we will discuss twelve of them here.
- Sudden Stock or Asset Sales
- High Employee Turnover
- Absence of an Accounts Payable Department
- Negative Changes to the Client’s Credit Report
- Changes in the Client’s Buying Behavior
- Changes in the Client’s Payment Patterns
- Insistence on Paying With a Check
- Being Asked to Adjust the Payment Agreement
- Being Requested a Payment Deadline Extension
- Excuses That Do Not Result in Payment
- Lack of Response From the Client
- Receiving a Debt Dispute From the Client
Sudden Stock or Asset Sales
When it comes to sudden stock or asset sales, we’re mostly talking about situations when your client is a company, i.e., a legal entity.
If a company starts selling off assets or stock at discounted prices, that could indicate they’re experiencing financial difficulties with an unstable cash flow or are going out of business.
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In such cases, your invoice(s) might not be paid on time or, in the worst-case scenario, at all.
It should be clarified that this and many other signs presented here should not be taken as a red flag alone, but they should raise suspicions when they appear in some combination with other indications.
Just be careful not to misinterpret a sign.
For example, your client might’ve sold assets to consolidate their business for future growth, and they continue to pay their invoices on time, and even bring you more work.
Nonetheless, under certain circumstances, sudden stock or asset sales by your client could be a sign of financial troubles, thus potentially jeopardizing the timely payment of your invoices.
High Employee Turnover
High employee turnover is another sign that, combined with others, can indicate your client is going through financial struggles and might default on paying your invoices.
Similar to the previous section, this predominantly refers to companies and other legal entities with employees.
Seeing a high turnover among your client’s employees, hearing or reading about it in the news or on social media, could be a sign that their business is struggling.
But it can also mean something else, like the company having poor hiring practices and/or bad management or facing a crisis of company culture, as suggested by an article in Forbes.
However, keep in mind that such issues will not necessarily make your client a late payer, as that depends on many other factors.
For example, the services/products you’re providing to the client might be critical and/or not easily replaceable, making the payment of your invoices a priority.
Nonetheless, when placed into a broader context (e.g., sudden resignations by top management, financial situation, etc.) and interpreted accordingly, high employee turnover can be a warning sign that your client is struggling and might not pay on time.
Absence of an Accounts Payable Department
First, let’s clarify that, in this context, an accounts payable department refers to one or more persons authorized by your client to process invoices and issue payments to vendors, including yourself.
In other words, if there seem to be no other employees to handle such payments, it can indicate your invoices might not be paid on time because your client is juggling too many responsibilities at once.
Naturally, there are still diligent business owners who can ensure the timely payment of your invoices despite having no dedicated accounts payable department.
Hence, this should only be regarded as an indication of potential issues if supported by other behaviors suggesting you might be dealing with a late payer, such as the client being generally disorganized or flaky.
Negative Changes to the Client’s Credit Report
For starters, being able to monitor the client’s credit report for negative changes that could indicate potential payment issues implies you did an initial credit check of your client before doing business with them.
In other words, to determine whether there is a risk that the client (company or individual) might not pay on time, it’s advisable to run a credit check at the beginning of your relationship.
Credit reports are usually obtained from one of the major credit reporting companies, such as Experian, TransUnion, and Equifax.
Despite some differences between persons and companies, a credit report will generally show your potential client’s financial status and payment history.
It will also include a general credit score/rating, details about any loans or defaulted payments, and invoice payment history showing their on-time/late payment pattern.
If your client is an individual, obtaining such a report will require them to request it, pay for it, and then share it with you, all of which can be done online.
If they’re a business, you can get a report for free or with a monthly subscription that enables future monitoring.
In any case, the insights gained from the credit report will enable you to make better-informed decisions about doing business with your prospective client and how you can protect your business from late payments.
After reviewing the initial credit report, you should monitor it regularly for negative changes, which could indicate your invoices won’t be paid on time, allowing you to take appropriate precautions, if necessary.
Changes in the Client’s Buying Behavior
When your regular client suddenly begins buying less (or less regularly) from you, it could mean they are struggling to pay their invoices on time.
Thus, knowing your client’s usual purchasing habits and monitoring them will allow you to detect any sudden changes that could indicate they’re going through financial difficulties.
Naturally, such changes can be brought on by any number of reasons unrelated to your business, particularly under the current circumstances (health and geopolitical crises, inflation, etc.).
In fact, recent and ongoing global events have already changed the purchasing behavior of many consumers, as discussed in this Forbes article.
Hence, if your client suddenly reduces their orders, you should consider which factors other than financial hardship could have affected their behavior.
Then you can consider how you can adjust your payment terms or other aspects of your relationship if you want to stay in business with them.
Regardless, changes in the client’s buying behavior can be a sign that invoices won’t be getting paid on time, and they should be monitored so you can make more informed business decisions.
Changes in the Client’s Payment Patterns
This warning sign is similar to the previous one, but it focuses on the client’s payment patterns.
In other words, changes in the time when the client usually pays your invoices could be a sign they are having financial difficulties.
For instance, when a regular client who often paid well before the due date begins paying their invoices just in time or requesting payment deadline extensions, it can be a clear sign they might not be able to make their next payment on time.
In such cases, it’s time to consider what you can do to protect your business and increase the likelihood that your next invoice will be paid on time.
Insistence on Paying With a Check
When your client insists on paying with a paper check, it could be a sign that they are struggling financially and are trying to get more time to pay the invoice.
First, let’s point out that the use of checks has been steadily declining with the rise of digital payment methods.
For instance, payments made by check dropped by more than 65% between 2000 and 2018.
Besides their declining use, another big issue with paper checks is their security, i.e., the fact they can be forged or stolen, which is why many companies have stopped accepting them.
However, it’s not unthinkable for an older client to still want to use a check to pay you.
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If they do, and none of their checks have bounced before, this may be their usual payment behavior and no cause for concern.
But, when a client who usually pays using digital payment methods suddenly wants to use a paper check to pay you, it can indicate they want more time to pay their invoice.
So, for example, they post you a check, which you need to take to the bank and deposit to your bank account, and then wait for it to be cleared.
This process can take several days, or even weeks, giving the client time to deposit just enough funds into their account.
This type of behavior may also point to more sinister intentions, like intentionally letting the check bounce or engaging in another form of check fraud.
Given all of the above, insisting on paying with a check should, under certain circumstances, raise a flag that your client is either trying to postpone payment or avoid it altogether.
Being Asked to Adjust the Payment Agreement
This and the other signs we’ll describe below belong to the category of sure indications of troubles ahead, which usually mean your client is unable or unwilling to pay their invoice on time (or at all).
The first among them is when a client asks you to amend the amount of payment or other terms you and that client previously agreed on.
If they had no complaints about the price or terms before, it could be a sign they are having trouble with their cash flow and/or are downsizing or cutting costs across the board.
Whatever the reason, being asked to adjust your payment agreement indicates there’s some trouble ahead, and you should consider it together with other signs to determine your best course of action.
Being Requested a Payment Deadline Extension
Of course, being asked for a payment deadline extension is a clear sign your invoice won’t be paid within the usual timeframe—again, because the client is unable or unwilling to do so.
Naturally, an occasional request to extend the payment deadline from a long-term client who otherwise pays on time should not be interpreted as a sign of trouble, at least when that’s not supported by other indicators mentioned here.
However, if a client starts to expect or asks for extensions all the time, it’s a clear sign that something is off, either with their finances or the way they do business with you (and maybe everybody else).
Thus, constant requests for payment deadline extensions indicate that your client and/or their business relationship with you are on shaky grounds and that your future invoices won’t be paid on time.
Excuses That Do Not Result in Payment
Listening to excuses that do not result in payment when the due date on your invoice is looming or has already passed is another sure sign that your client is unable to pay their invoice on time or wants to avoid payment altogether.
For instance, a trusted client may be experiencing financial woes but be too proud to say it, and that’s why their late payment excuses don’t sound genuine.
On the other hand, frequent explanations, empty promises, and regularly late payments are the usual calling signs of an unreliable client.
You can read how to handle all kinds of late payment excuses in our article.
In summary, when it comes to excuses that do not result in payment, your future business relationship with that client is in question.
Lack of Response From the Client
Of course, getting the silent treatment from the client who owes you money is another sure sign they can’t or won’t pay you on time, if ever.
Usually, when the due date on your invoice has passed, you might send a payment reminder email, followed by another one if there’s no reply.
However, if there is still no answer, it’s the first warning sign your client might be avoiding you because they’re not able or willing to pay the invoice for any reason.
Of course, you should proceed to call them directly, as phone calls are harder to ignore.
However, if they don’t answer your calls and ignore your efforts to contact them using other messaging apps or social media, it’s pretty sure they’re aware of their obligation, know what your messages say, and are avoiding their responsibility to pay the invoice.
In such cases, provided you want the invoice paid, it’s time to get creative with your communication, explore other options, or take legal action.
Receiving a Debt Dispute From the Client
If you receive a debt dispute from the client, the first thing to do is determine whether there might be some merit to their claim.
For instance, if there’s a mistake on your invoice, it can be easily corrected, and the delay will still result in you successfully dealing with a disputed invoice.
However, if your client’s complaint is not legitimate, disputing any aspect of the business transaction that resulted in their debt is usually a tactic to avoid paying their invoice within the time frame or the total amount agreed upon.
In this case, it’s best to remind the client they already agreed to your service and payment terms, including the price, and didn’t have any objections until now.
If that doesn’t work, you can escalate the issue and enforce your legal rights.
In summary, if your client is disputing their debt, and you find no real reason behind their complaint, it could be their way of avoiding having to pay their invoice on time, in full, or at all.
So, we’ve reached the end of signs your invoice won’t be paid on time.
Given all the above, it’s evident that they can range from potential indicators of your client’s financial or other difficulties, such as sudden asset sales or high employee turnover, to sure signs they can’t or won’t pay, such as endless excuses or baseless disputes.
So, if you sense something is wrong before or during your business relationship with the client, look for these signs to ultimately make better decisions for your business.