Don't Make the Same Mistake as I -- Protect Your Small Business from a Customer's Bankruptcy.
| posted by Susan SolovicMore years ago than I’d like to admit, I owned a small advertising and public relations business. When I say small, it was just a few freelancers and me, but that didn’t deter me from going after the big fish. Nope. And I finally caught one. My big fish was a rapidly expanding deli chain, and I won all its business. Wow! There was so much work involved that it consumed me so I didn’t have time to reel in more clients. Then one day, the owners of the deli chain just disappeared. Poof! The headquarters building was locked tight and the owners were nowhere to be found. The company filed bankruptcy. Well, there I was left with thousands and thousands of dollars in unpaid bills to vendors, media outlets and for other expenses -- not to mention the money they owed to me for my work. Not a good situation. Fortunately, I worked out deals with my creditors and gradually paid them off, but it forced me to close up shop. I went back to a job earning a regular paycheck. So what would you do if this happened to you? A customer’s bankruptcy can easily bankrupt your business too. When a customer files bankruptcy, you may be surprised to learn that you have little or no protection under the bankruptcy laws. Bankruptcy courts are for debtors, not creditors. And business bankruptcies are on the rise. According to the American Bankruptcy Institute, business bankruptcies in the first half of 2008 were 42.1 percent higher than the same period last year. Now, is the time to take steps to protect your business before it’s too late. Don’t push product out the door on easy credit terms. And if you are dealing with a first-time customer, make sure you check credit references even if you’re sure it’s okay. Watch for changes in payment habits, too. If a client that normally pays on time, starts lagging behind, you need to consider that a huge red flag. Don’t let them get in too deep. Another thing to watch out for is a break-down in communications. People who owe you lots of money and can’t afford to pay you tend to not return phone calls. And of course, don’t put all your eggs in one basket. Diversify your client base so you won’t end up closing the doors as I had to do.
