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Four signs that your balance sheet is in trouble

January 3, 2014
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When most people think about managing their accounts receivable department, they think about a bookkeeper or certified public accountant.

In fact, some businesses could benefit from an attorney consultation.

There are common red flags that indicate when an account may go into default — or is already there. Consistently late payers or runaround conversations regarding invoices not only drag down cash flow, but also prevent businesses from planning ahead with real numbers in hand.

Here are four common signs that your business bottom line could benefit from legal counsel:

Payments beyond 90 or 120 days feel normal: In some industries, payment terms are dictated by the business cycle or size of customer. However, if an average business dealing with average customers starts to notice a larger percentage of customers pushing off payments for three or four months, it can affect the business’s ability to plan ahead for debt, investment and taxes — in effect endangering its future. Although collections can be a difficult or uncomfortable part of business, ignoring a looming accounts receivable problem won’t make it go away.

Requests for payment result in silence or broken promises: If customers ignore numerous requests for payment, they may have determined that other creditors are more important by virtue of harsher penalties or terms. Inconsistent pursuit of payments or penalties may gradually place your business lower on the payer list — particularly for a debtor with cash flow issues.

Ordering patterns change abruptly: When customers experience financial trouble, they may change their ordering patterns to support cash flow. It doesn’t always mean they will order less; some businesses will order more product than usual in anticipation of poor cash flow. Combine a change in ordering patterns with increasing payment delinquency, and this is a recipe for lost revenue.

Staffing or ownership changes loom: If word on the street says a customer’s business may be sold or is changing staff, pay attention. Contracts with the previous staff or ownership may not be honored when decision-makers change. Head off the potential for lost revenue by stepping up collection efforts. Any potential new ownership will want any problematic accounts receivable issues cleared up before finalizing purchase of the business.

Business owners are in the best position to evaluate if their accounts receivable department would benefit from legal counsel. But legal precedent shows the longer they wait to assert their rights, the harder it may be to collect. When trouble is looming, be the early bird.

Jim Komondy has extensive experience in collections techniques as a litigator with Law Weathers in Grand Rapids. He may be reached at (616) 732-1764 or at jkomondy@lawweathers.com.

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