Spotting Trouble Early

Why early detection matters

The earlier you identify a customer who is heading toward non-payment, the more options you have. A business that is six weeks overdue is usually recoverable. A business that has been three months overdue, accumulated additional debt with you, and is now trading insolvent is a far harder recovery — and far more painful for your balance sheet.

The warning signs of financial difficulty are almost always visible before a customer stops paying entirely. This lesson teaches you to read them.

Behavioural warning signs

Changes in a customer's behaviour are often more telling than the numbers. Watch for:

Payment pattern changes

A customer who has reliably paid on day 14 and begins paying on day 21, then day 30, then day 45 is under cash flow stress. The trend matters more than any single late payment. Build a simple log of when each customer actually pays versus when they are due to pay.

Partial payments

A customer who suddenly starts paying 80% of an invoice — leaving a "short payment" — may be managing their cash flow by paying enough to keep suppliers happy without settling in full. One partial payment is worth a phone call. A pattern of partial payments is a serious warning.

Disputes that didn't exist before

A customer who suddenly disputes the quality, scope, or correctness of invoices they never questioned before is almost certainly using the dispute as a delay mechanism. Genuine disputes arise at the time of delivery; retrospective disputes that appear when the bill is due are a red flag for financial stress.

Requests to change payment terms

A customer who asks to move from Net 14 to Net 45, or who asks for a payment plan on an invoice that isn't overdue yet, is managing a cash flow problem. It is reasonable to accommodate short-term stress in a good relationship — but do so formally, in writing, and don't let the concession roll over indefinitely.

Key contacts become hard to reach

When the accounts payable contact stops returning calls or the owner is suddenly "unavailable," that is a signal. Businesses that are paying normally don't avoid their creditors.

Requests to increase credit limit suddenly

A customer who has operated within their credit limit and suddenly requests a significant increase may be looking for additional supplier credit to fund a liquidity problem. Scrutinise any sudden credit limit request from a customer whose payment pattern has also been changing.

How to read an ageing report

An accounts receivable ageing report groups outstanding invoices by how long they have been overdue: Current, 1–30 days overdue, 31–60 days, 61–90 days, 90+ days. Review yours weekly.

Key things to look for:

• Debt migrating into older buckets — if a customer who was in the 1–30 column last month is now in the 31–60 column this month, they have not paid. That is your signal to escalate the contact.
• Concentration risk — if one or two customers represent more than 30–40% of your total debtors ledger, their financial health has an outsized impact on your cash flow. Monitor them more closely.
• Invoices in the 90+ column — any invoice over 90 days requires immediate action. The statistical likelihood of recovery drops sharply beyond 90 days. This is addressed in detail in Lesson 6 (When to Escalate).

External signals of financial difficulty

Beyond your own observations, several external sources can indicate a customer is in trouble:

• ASIC notices — a company entering administration, receivership, or liquidation will be listed on the ASIC insolvency notice database (insolvencynotices.asic.gov.au). Check key customers periodically.
• Trade press and social media — industry news of a customer's business difficulties often appears before it reaches official channels.
• Credit bureau alerts — if you have a bureau monitoring subscription (illion, Creditor Watch, Equifax), you can receive automated alerts when a customer's payment default is reported by another creditor.
• Court judgments — a court judgment against your customer in favour of another creditor is a serious warning. Judgment searches are available through state court registries or commercial search providers.

Responding to warning signs

When you see warning signs, act quickly and proportionately. The standard response sequence is:

1. Make contact — phone the customer directly. Do not rely on email for a deteriorating account. Ask specifically: "I've noticed your recent payments have been taking a little longer — is there anything we should be aware of?" Many customers will tell you the truth if you ask directly and without accusation.
2. Stop extending additional credit — if the account is showing stress signals, pause or reduce the credit limit. This is not punitive; it is basic risk management. New orders should be on cash-in-advance or reduced terms until the existing balance is brought current.
3. Document everything — keep a written log of every contact attempt, every commitment made, and every payment received. This documentation is critical if the matter escalates to formal recovery.
4. Escalate your follow-up cadence — move from monthly statements to weekly or even more frequent contact for accounts showing stress. Lesson 4 covers the escalating follow-up cadence in detail.

Slow payer vs insolvent debtor

Most slow payers are not insolvent — they are managing cash flow. The distinction matters because the approach differs. A cash-flow-stressed customer can often make a payment plan, clear the debt over time, and remain a customer. An insolvent customer cannot pay you regardless of how many times you contact them, and every week you wait is a week more exposure to a debt that may be irrecoverable.

Signs you may be dealing with insolvency rather than cash flow stress: multiple creditors calling (you hear this on the grapevine), directors making personal phone calls rather than accounts staff, assets visibly declining, or the company publicly going through restructuring.

If you suspect insolvency, take legal advice immediately and consider lodging a creditor's claim before the formal insolvency process closes the window.

Related tools and resources

• Debt age impact calculator — how recovery rates drop as debts age
• Credit application template — includes credit limit setting framework
• Reading an AR ageing report — Merion newsroom guide