Safeguards Against Delinquent Clients

Untitled design-8It’s something every organisation has to do regardless of its industry or size. I’m referring to safeguarding itself from a client with a poor credit history. This client could be another business entity or individual.

In the Caribbean, reducing the risks of a potentially doubtful client, can prove to be a difficult procedure. This is due to the lack of credit rating agencies; insufficient trading data for our industries and a limited number of publicly traded companies. As well as, the fact that the credit history of an individual is confidential.

So how does your business overcome these challenges and safeguard itself against a potentially doubtful client?

  1. Client Assessments

Every service based organisation should have established policies in place to evaluate the possibility of doing business with a client.

These policies need to outline the procedures to be performed prior to entering into a business relationship and should include:

  • Assessing business clients by:

      – Requesting trade references

      – Gathering information from:

           – Store locations/ headquarters

           – Websites

           – Social media accounts

           – Newspaper articles

           – Business networks and trade associations

           – Researching the company’s directors/owners

      – For publicly traded companies, analysing the historical financial performance of the company            with an emphasis on the company’s debt coverage and profitability

  • Assessing individual clients by:

      – Performing searches on Google and social networks

      – Asking others within the business community for references

      – Requesting job letters and personal references


 2.   Deposits

In addition, it should be a common practice for your company to request a deposit (a portion of the total fee charged) for any service rendered or speciality product manufactured. This demonstrates that the client is willing to pay for the product or service provided. More importantly, it provides an inflow of cash to the company prior to the completion of the job.

 3.  Work-in Progress Fee Structure

When at all possible, structure your fees using a work-in-progress basis. This allows the client to make incremental payments towards the total cost of the job and encourages the full settlement of your invoice.

 4.  Discounts

Provide your clients with a discount for the early settlement of their invoice. This will also encourage prompt payment.

Unfortunately, despite the mitigating factors that can be employed, there is no way to fully eliminate the risks of doing business with a customer who has the potential for becoming delinquent .

Rashida Parasram, Managing Director MPR Consulting

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