Received a big order from a new customer in uncertain times with cheers? Trust is good, but control is better. Wise words to develop your business in a healthy way. So, it is maybe best to do a background check and ask for an advance invoice to be on the safe side?
It is an open secret that we can brace ourselves for a wave of bankruptcies that will roll well into 2022. 2021 will be a transition year. Average economic activity is still 7 percent lower than normal. Currently, 1 in 5 companies are experiencing sever cash problems, also companies that were profitable and solid before corona. Experts expect that 26% more companies in Belgium will go bankrupt in 2021 compared to 2019.
The fallout of that macroeconomic story that unfortunately has little control over you? An increased risk of unpaid invoices. And that while in booming economic times, one in three invoices is already paid late.
How do you prevent overdue payments or non-payments from mortgaging you own cash flow and hindering your growth? Knowing that a quarter of bankruptcies are caused by non-payment.
Hold up to the light
When even trusted and well-run businesses experience payment difficulties for the first time due to there exceptional circumstances, there is no sign of unhealthy suspicion to scrutinize your new customers.
Check how creditworthy your new customer is. There are external parties who can prepare a credit report for you, but you can also take action yourself:
- look for other customer experiences on Google and social media;
- hear around in your own network;
- check the publicly accessible annual accounts on the Website of the National Bank.
You’ll never be certain for 100 percent, but if you come across anomalies, warning signals are bound to go off.
Canary in a coal mine
If you customer seems like a solid partner, you can still limit your own risk on late or unpaid invoices by drawing up an advance invoice. Especially for long-term assignments it is highly recommended to do this. Not only does an advance invoice act like a canary in a coal mine and you detect impending (payment) difficulties) with it, if it is paid on time, you already have that cash in advance.
An important side note: there are sectors in which new customers do not receive payment facilities. The rule there is that you usually have to pay three times in cash before you are ‘entitled’ to a specific payment term.
Overcoming the threshold
Only… is it appropriate and courteous to request an advance from a new customer? What if he sees that as a sign of suspicion? Do you burden your early business relationship with that? Your customer will think: if it is already difficult, shouldn’t I look for another supplier? Even with existing customers, asking for an advance can seem strange and they may wonder if you are in financial difficulties.
In short, to ask for money in advance you often have to overcome a psychological barrier. Everything stands or falls with open communication because your customer does not like to pay form something that is not yet there. Which arguments can help to convince him?
- The fact that you offer exceptional services or products for which there isn’t just any alternative.
- References from other customers.
- The fact that the advance amount only covers part of your costs.
- Possibly the agreement that the amount will be refunded if the customer is not satisfied. Be sure to give this some serious thought: there is a big difference between an effort directive and a result directive.
Healthy business operations must be high on your agenda. Advance invoices can help you achieve that goal. What is at least as important is that your invoices are paid on time. If your customer is failing you in that regard, call on Go Solid to collect unpaid and undisputed B2B invoices faster and cheaper.