Health check on your customers

AS FIGURES reveal an 11.2 per cent increase in company failures in Yorkshire and Humber during the last quarter of 2010, Sheffield’s businesses are being urged to take stock of the financial health of their key customers.

Matthew Dixon, an insolvency specialist with hlw Commercial Lawyers, describes some of the early signs of insolvency businesses should look out for:

“Scrutinise the trading and payment patterns of your customers. If the level of orders suddenly increases, find out why and try to adjust the payment terms. Also, asking for extended credit can be a tell-tale sign of a company with financial problems.

“Be particularly vigilant with new customers and make sure they are not coming to you because they are “on stop” elsewhere. Don’t be over reliant on formal credit checks as these are based on information such as judgements or winding up petitions. By the time a business reaches this point, it’s often too late.

“Communication about payment becomes increasingly difficult with businesses in trouble. If your customer is not replying to e-mails, taking phone calls or providing any feedback, they may be on the verge of insolvency. If all possibilities have been exhausted and complete communication breakdown occurs, seek specialist advice.

“The largest single creditor of many companies is HMRC for PAYE, NIC and VAT. Be aware that HMRC has recently tightened up its scheme allowing businesses to pay tax by instalments, which is expected to contribute to more insolvencies as businesses fail to manage their debts.

“Market intelligence is vital so do talk to other companies in your sector – even your competitors. When a customer becomes insolvent it can dramatically affect your own business, so it pays to be vigilant about the early warning signs.’’