Financial Distress: The 10 Warning Signs

Wednesday 3 May, 2017

It adds up that if a business is experiencing financial difficulty, there’s a good chance that invoices won’t get paid on time, and potentially not at all. That’s bad news for your bottom line. At Optimum Recoveries we’re here to help, so we thought we’d share our top 10 warning signs that a business is in financial distress with you.


(1) Cash flow chaos

“I’ll pay you as soon as I get paid”. Proper cash flow planning is essential for business, and Credit Managers understand this. However, an inability to calculate and forecast cash flow in line with peaks and troughs is a concern and might be a warning that future credit problems are on the radar.

(2) Expedited expansion 

Growth is great, but rapid out of control  growth can spell danger and desperation.  Need convincing? Take a look at Krispy Kreme here in Australia, Pie Face, Hi Fi Bar and even the very successful MissChu. They all grew too fast then crashed. New premises, new staff, other outgoings - there are some substantial costs involved with business expansion and unless they have been properly planned for, everything could come crashing down when the bills come in.

(3) Capital cravings

“I’m just waiting on a boost of capital to come through from the bank, so I’m going to be a bit late paying this month”. Does this sound like something a successful business would say? Borrowed capital should be used for capital costs, not for paying outstanding bills. 

(4) Sad staff

It’s true what they say: the receptionist knows all. If you’re dealing with a new staff member each time you contact your customer, this could signal a business in distress. Maybe their employer is not paying them on time, or the workplace environment is just simply unpleasant due to stress and anxiety from the top as a result of money problems.

(5) Missing in action

If your customers are late paying and seem hard to get hold of (avoiding your calls / emails, or always ‘in a meeting’), the chances are they have something to hide. And that ‘something’ might be their failing business. It might be time to call in an expert to get that invoice paid.

(6) Poor payers

It seems obvious, but if your customers aren’t paying you, then the chances are they’re also not paying their other creditors, including staff, the Tax Office, and other suppliers. If you’re aware that other suppliers of the business you’re dealing with are also not being paid, it might be time to re-think your business relationship and credit terms. 

(7) Continually casing credit

It’s normal for businesses to borrow funds. But a healthy  business should eventually become self-reliant, pay back loans, and start turning a profit. Just like a shopper with multiple ‘maxed-out’ credit cards, continual borrowing means something just isn’t right. A business that is overly-reliant on credit (including overdraft facilities) might have a problem if they  are relying on credit to get by.

(8) Discounting in desperation 

Discounting is a great strategy if you need to clear excess stock, bring in some cash, and reward loyal customers. But sudden discounts ‘across the board’ might indicate that there are some underlying problems with the books in the business. If the discounting seems ‘desperate’, it probably is. 

(9) Stock scarcities 

Imagine you’ve just placed a large order and your supplier  tells you they are out of stock. Not an uncommon occurrence due unexpected supply chain hiccups, right? But if your supplier suddenly has unexplained stock shortages, this could be a warning sign that they are having credit problems with their suppliers. Conversely, if you’re the supplier and receive an unusually large order without a reasonable explanation, this might mean your customer is stocking up in expectation of  being refused credit by you in the future.

(10) Lease or higher purchase laggards

Businesses that aren’t making lease or higher purchase  payments are either disorganised or out of shape financially.  Let’s be honest: the former is more likely. If a business you’re dealing with is in a high-end office and driving a top-of-the-range car one week and then working from home and catching the bus the next, they are more than likely in financial distress.  If they can’t make lease payments, then your invoice will almost certainly remain unpaid. It’s time for some swift action from an expert team.

 If more than a couple of these warning signs seem familiar in your business or businesses you deal with, it’s time to take a step back and call in the experts. Optimum Recoveries can help with:

– completing a confidential review of your cash flow, payment terms, and terms of trade,

– setting up credit alerts to alert you when your customer might not be paying other suppliers on time,

 – collecting outstanding debt, and

– gathering intelligence from your customers and letting you know if we think they are at risk of paying late again in the future.

 Take the 'Get Paid by June 30' challenge today. Register your interest here or call (07) 3166 8888

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