Supply Chain Secrets is about helping anyone who’s involved in supply chain, either directly or indirectly. With that in mind, this month’s post touches a topic in which financial managers and staff share a common interest with operators—the financial health of customers.

 

Customer Financial Distress

 

While remembering that excellence in customer service is an essential aspiration for any supply chain, it’s important too, to keep a weather eye on your customers’ financial health. The best customer service provision in the world won’t help your business when one of your clients goes into receivership, for example. Therefore, it’s important to keep a look out for the signs that your organization is at risk, from a customer’s financial health decline.

 

Some Signs that a Customer is in Financial Distress

There are clues that you can look for, which indicate when a customer might be in financial trouble. If it’s a large and valuable customer for your organization, you will at least benefit from knowing in advance that a risk is developing. Some of the clues to watch out for include:

  • The customer’s payment habits change unexpectedly
  • You find you are waiting longer and longer for the customer to make payments
  • The customer begins to dispute invoices more frequently than the norm
  • Concealment, secrecy and silence begin to feature in communications between your client and your business, especially in interactions with your finance department

In the case of some customers’ financial health, you may be able to keep an eye on published financial information too, especially if the customer is a large, publicly traded corporation.

 

Acting on the Intelligence

By checking the vital signs of customer financials, you can help protect your business from fallout if the customer stops paying or completely goes under. If the signs indicate a risk, you can keep a closer eye on the customer and if applicable, take a more proactive approach to managing any contract that exists.

Of course, in the day-to-day frenzy of your operation, it’s not always easy to focus on what’s happening externally. With close collaboration between accounting and operational teams though, you should be able to monitor your most important customers’ financial health and therefore, steer your own organization clear of any looming icebergs.

 

Best Regards,
Rob O’Byrne
Email or +61 417 417 307