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How to Tell if a Company Is Facing Financial Uncertainty

How to Tell if a Company Is Facing Financial Uncertainty

The ability to detect when a supplier, customer, or business partner is facing financial uncertainty is an important aspect in safeguarding your own company. If the warning signs are overlooked for too long, then the results can have a detrimental effect on your business too, particularly if it involves unpaid invoices or loss of business.

With companies becoming insolvent in the every day, it is important to understand that financial problems can affect businesses in any industry and of any size.

Here, we discuss several warning signs that may pertain to a company facing financial problems.

Poor Credit Score

By carrying out credit checks for businesses, you are able to view a company’s credit score, allowing you to establish how good they are at handling their financial responsibilities. You should monitor your suppliers’, partners’ and customers’ credit ratings semi-regularly in order to keep abreast of any major changes.

If you notice a drop, this could indicate that something has happened which has affected them financially. Company credit reports normally provide a breakdown as to why the score has increased or decreased, helping you decide how you wish to proceed with them.

Cash Flow Problems

One of the first indicators of financial trouble is experiencing cash flow problems. A classic warning sign pertaining to this includes late, missed, or partial payment of invoices, which can indicate financial woes. If a client has not paid you in full and on time, it often means they are failing to pay their other suppliers too, and sometimes even their own staff.

Communication Issues

Changes in communication between you and the company in question can be alarming, particularly if you are used to regular correspondence. If they suddenly start ignoring your emails or failing to call you back, this may be cause for concern. Perhaps you are chasing them for payment that they are unable to meet, or asking them to undertake a service that they cannot fulfill due to cash flow problems. As such, always be vigilant of any such changes to your business relationship.

Taking a proactive approach, you can check whether their company website is still up and running, and even take a trip to their commercial premises to see if they are operating. If you still fail to get hold of anyone and have unpaid invoices or work outstanding from them, it might be time to consider taking legal action.

Director Changes

High turnover of top-level staff is often an indicator of a struggling business. If new directors are regularly appointed, it could suggest that there are problems with the company itself, or that those in higher positions are not seeing eye-to-eye. This, of course, generally filters down and causes problems for staff at lower levels, disrupting the flow of work, aggravating customers or clients, and, eventually, affecting the business’s bottom line.

Be sure to carry out a director search and look into the company’s appointment history, which provides information on whether the directors of the company you are dealing with have held previous director positions before. If they have, and the former businesses have gone into liquidation or have dissolved, this could indicate that the individuals are not fit for the role.

Such information will enable you to exercise caution and come to an informed decision regarding your future business relationship with that company.


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by Stephen Anderson // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.