Every day we read media reports of corporate insolvencies, bankruptcy and spiraling costs. Small businesses are feeling the pinch as the recession has slashed customer spending drastically. Whether a small business has B2B or B2C dealings, it should be watchful of signs that imply customers are facing financial deficit. The rising unemployment is making a bad situation worse for small businesses as customers are left with no disposable income.

Most small businesses have incorporated credit card processing into their workplaces. Customers can easily use credit cards to purchase items they may never be able to pay for. If customers insist on using credit cards, it may be because they are hard on cash. If they call up credit card agencies to dispute genuine purchases, it’s time to stop doing business with them.

Small B2B businesses need to be especially alert for signs of client companies nearing bankruptcy. Problems in large companies usually get media attention and are publicized. Falling stock prices are another bad omen. If the clients are smaller companies, the business should be wary of customers requesting extension of credit repeatedly and delaying payments. Talking to sales people, industry peers, and collection agents also gives an idea of the company’s financial status. The business should keep a tight control of the receivables and recover payments within 30-45 days to avoid getting pennies for a dollar in bankruptcy settlements.

Small businesses can have a tough job collecting bills. Customers may try to delay payments to maintain cash flow for their own business. Some may even disclaim payments. Small businesses do not have the margin to survive delayed payments for long. Incoming payments are the lifeblood of small businesses, used to pay suppliers and run daily operations. Collection agencies can be a great help here as they are effective in collecting a good percentage of debts on time, without hurting the customer relationship.

Small businesses should keep a tab on customer’s financial standing so that they can take immediate steps to minimize losses. Failed payments can drain the cash flow and derail the business entirely.