In this economic climate, many businesses are feeling the pinch. Supply chain troubles, inflation, and irregular demand have caused ripples across industries, and construction is no exception.
For material suppliers and contractors involved in large projects, these shifts often result in slower payments and severe financial strain. As a credit professional, your job is to mitigate risk–ensuring your company’s financial health while maintaining solid business relationships.
But when a client’s financial condition declines, how do you approach the conversation diplomatically?
It’s not just about getting paid—it’s about understanding the whole picture and working toward solutions that protect your company while helping your customers navigate tough times.
Tough Times: Current Market Realities
As markets tighten, companies could turn to delaying payments to balance their cash flow, or they might genuinely be struggling to meet obligations. Credit departments must distinguish between customers adjusting to tough times and those on the verge of financial trouble.
For example, a materials supplier may notice that a contractor working on a large commercial project is suddenly late on invoices between sizeable deliveries. While delays might initially seem like minor hiccups, they could indicate deeper financial issues, requiring careful management before they escalate into significant losses.
Anticipating Financial Trouble: The Subtle Signs
The key to effective communication is early detection. Initiating conversations before a situation spirals out of control will help both parties.
Some indicators might include:
Consistent Delays in Payment Without Clear Communication
If a customer who previously paid on time begins stretching out their payment terms without explanation, it could signal cash flow problems.
Requests for Extended Credit or Alternative Payment Arrangements
A customer asking for lenient terms they’ve never asked for in the past or additional time to pay may be doing so out of necessity. While this doesn’t always mean trouble, it’s worth investigating further.
Changes in Order Volume or Project Delays
Large material orders, sudden project activity drops, or unexpected delays can point to underlying financial difficulties.
Initiating the Conversation
Once you’ve flagged signs of trouble, it’s time to have an honest conversation. Approach it diplomatically—your goal is not to accuse or alienate the customer but to understand their situation and find a way forward.
Start with Empathy
Acknowledge the broader economic challenges they may be facing. Something as simple as, “I know these are tough times for many in the industry,” can open the door to a more transparent conversation.
Ask the Right Discovery Questions
Instead of diving straight into unpaid invoices, ask open-ended questions to understand their current financial position.
“Are you having any issues with cash flow right now?” or “How is the project timeline affecting your payment schedule?” can help uncover the root causes.
Present Solutions, Not Ultimatums
Once you have a clearer understanding of their situation, offer potential solutions. You can adjust payment schedules temporarily or agree on partial payments to keep things moving.
However, firmly protect your company’s interests—this is where your credit policy will flex its muscle. Use it to guide your decisions on adjusting terms or offering flexibility, but always ensure you’re safeguarding your company.
It is essential to secure your lien rights on every project. Liens offer a potent legal tool to ensure payment, safeguarding you from potential losses if the situation deteriorates.
Practical Pointers for Managing Payment Risk
While every situation is different, there are some practical steps you can take to minimize risk when dealing with customers facing financial difficulties:
Communicate Early and Often
Keep the lines of communication open. Checking in regularly, especially with high-risk customers, allows you to catch issues before they become unmanageable.
Review Customer Payment Data
Use financial data and historical payment patterns to guide your conversations. Take a look at your payment platform and accounting tools to see if there are shifts in payment behavior so you can flag them early and act accordingly.
Offer Flexible Terms (With Caution)
Flexibility can help but it should come with protections. For example, if a customer asks for extended payment terms on a large order, you might require a bigger upfront payment or additional collateral to mitigate risk.
Stay Informed On Project Progress
Project delays can quickly turn into financial bottlenecks. Stay informed about your customer’s project status so that you can adjust expectations and prepare for potential disruptions.
Taking Control of the Conversation
Navigating financial concerns with customers isn’t only about protecting your company—it’s about taking control before things escalate. By spotting early signs of trouble, you can lead the conversation, build trust, and find solutions that work for both parties.
Approaching these challenges with open communication strengthens relationships and positions yourself as a partner, not just a creditor. When warning signs appear, reach out, ask the right questions, and work toward a solution that safeguards your company while maintaining the relationship.