Cash flow is the back bone of any business - an absolutely essential element for sustainable growth. Since the Global Financial Credit Crisis, companies which relied heavily on client payments were forced to take a second look at their outstanding accounts, some faced the realisation that their biggest clients had gone under. D&B research from September 2009 found that one in ten Australian firms is at risk of financial hardship in 2010. What if this one firm is your highest paying client or worse, your top five clients fall in this category? Let's look at how you can protect your business.

Tackling the problem before it arises is the first step to securing a paying client. Carrying out credit checks and conducting research before signing new clients will allow you to watch for early signs of trouble and prepare you for the risk that maybe involved.

Here are a few tips:

• Credit checks
• Due diligence
• Advance payments
• Meet with new clients

Credit checks: Often companies don't pay a lot of attention to the background of new clients as they 'seem' to be fine. Credit checks on new clients are recommended as you don't want to wait for outstanding payments and late invoices to realise that something is wrong. Dun and Bradstreet provides a comprehensive credit checking service which will allow you to better understand the payment capabilities of new clients. A company check will also provide a Dynamic Delinquency Score (DDS), which is a payment predictor that informs you on the likelihood of timely payments. Carrying out credit checks on existing clients is another sure way of keeping on track with their financial health.

Save yourself the pain of late payers, click here to order a credit report now:

Due diligence: Many firms often go without due diligence for big organisations that seem to be in a stable condition. However, the D&B trade payment analysis reveals that it is the bigger companies that are slow in making payments when compared to their smaller counterparts. Therefore the size of a firm doesn't reflect its payment performance. The bigger the deal, the deeper you need to go into the client history.

Advance payments: Decide payment terms beforehand; ask to be paid up to 25 per cent (or more) of the total deal in advance with the remaining to be paid before the delivery. For instance, set a limit of $5000 on all transactions. Any deal over this amount should pay 25 to 33 percent of total costs in advance. If, for some reason this payment cannot be arranged, ask the business owner to provide a personal guarantee for the amount. This will reduce your exposure to risk in case things go wrong.

Meet with new clients: For small businesses it is suggested that you meet with all prospective customers and get a better understanding of their business values. Arrange meetings at their office or work site to identify fraudulent companies that seem larger on paper / over the phone, than they actually are. If there is still ambiguity, ask for personal and professional references.

Now let's look at what happens if you have taken all the precautions and yet payments from your client have slowed down and there is talk of the company heading towards bankruptcy. What do you do? Here are some tips on how to recover lost capital:

• Ongoing monitoring
• Meeting with decision makers
• Recovery
• Debt collectors

Ongoing monitoring: Keeping up to date with all customers is a time-consuming and often pain staking task. However, in the wake of the global financial credit crisis, it is recommended that you stay vigilant of the financial health of your top clients. This will also allow you to identify early signs of trouble and enable you to address pending issues before loosing any money. 

Meeting with decision makers: Meeting with the person in charge of paying you and making payment decisions is encouraged as it leaves no room for misinterpretations. It also allows you to resolve all documentation and invoice related issues directly. If the company has already filed for bankruptcy, meet with the bankers and other involved staff to stay informed on what is being done about your money.

Recovery: If all else fails, you may need to send out a polite reminder for pending payments. Follow up with calls to confirm that the letter has been received and payment is being organised. If it doesn't work send out another letter with more intensity. Sometimes it's a genuine delay, sometimes its outright fraud. The reminder will separate the two, with the latter requiring more stringent measures to handle.

Debt collectors: As a last and final resort, you may need to hire an agency to recoup your pending money. Taking legal action against the company at fault is not recommended as it is time consuming and can cause a strain on existing resources.

Click here to find out more on what to look for when hiring collectors:

Lastly, prevention is better than cure therefore it is essential to safeguard your cash flow than to chase non-paying customers. Adopting simple practices when securing new clients or operating in a volatile economy can help you protect your business and reduce the risk involved.