Of course, I'm not a lawyer, so be sure to get your legal advice from a licensed attorney in your state.
1. Keep an eye out for "at risk" customers.
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If a customer is paying more and more slowly, that could be a sign they're having cash flow problems. You may even want to check credit ratings to find out where your customer stands.
2. Write short-term contracts.
Once a customer files for Chapter 11 bankruptcy protection, you may not be able to terminate long-term contracts you have in place.
If you think a company may be headed for bankruptcy court, you may want to change any long-term contracts to month-to-month.
3. Structure your contracts so they qualify for "administrative" claims.
Typically, a bankrupt customer might only have to pay you a fraction of what your receivables are worth (as little as 10 cents on the dollar.)
But the bankruptcy laws allow you to make "administrative" claims against a customer for the full value of any goods received by that customer within 20 days before they file for bankruptcy protection.
It's pretty easy to make sure you qualify for administrative claims... just require 20-day payment terms.
4. Get a deposit.
If the client balks at paying on 20-day terms, simply require a deposit that covers a couple of months' worth of orders. You can require the customer to replenish the deposit account as goods are delivered.
Know how to handle a customer's bankruptcy. It can help ensure that your own business doesn't end up filing a Chapter 11.
P.S. Is it too late? Did you get stuck with a bankrupt customer? Give us a call at 954-510-0328 to learn about our small business lending programs. We can help you stand on your own two feet while your bankrupt customers get back on theirs.