Don’t be surprised when a customer that declared bankruptcy once before does it again

Corporate bankruptcy rates are at Great Recession levels last seen in 2009-10. The worse news? The year’s only a little more than half over.

CEOs, CFOs, credit departments and Sales team members need to be aware of the higher risks when taking on new customers or doing more business with existing ones. Too often companies don’t know a customer’s about to file or in danger of going under until it’s too late to collect. At that point, just collecting a chunk of a debt owed is a win for the lender.

Bankruptcy courts are giving businesses more rope than ever to get their acts together and stay afloat. That’s due in part to recent laws giving the debtor the benefit of the doubt.

Case in point: Businesses filing for bankruptcy under Chapter 11, making a go of it, likely borrowing above their means – and then filing for bankruptcy a second time under Chapter 22.

Fact: 23% of accounts receivable (A/R) and collections pros say they’ve dealt with a customer going into bankruptcy for a second time, according to a survey by the National Association of Credit Management (NACM). Imagine an A/R staffer having to tell his or her boss “they did it to us again!”

Gulp! Repeat bankruptcies at 2009 levels

High inflation rates, price surges and tightened lending standards are making it especially difficult for small- and mid-sized businesses to secure funding. The NACM’s podcast “Extra Credit” warns that all of these factors are contributing to a surge in Chapter 22 bankruptcy filings. Repeat bankruptcy rates are now at 2009 levels, perhaps signaling a recession is in the cards.

To stay ahead of the game, A/R staffers should be alerting decision makers to customers stretching payments or who aren’t responding promptly to emails and phone calls. The quicker a finance team jumps into action when a customer’s not paying, the more likely it is to avoid getting shut out in a bankruptcy hearing.

Staffers may need to be reminded that often the key to getting paid is asking the customer for payment. Late payers respond to direct asks for payment at a higher rate than customers that don’t.