What you are seeing is a pattern for a business that is experiencing a cash flow issue and ultimately will go out of business as suppliers will move them to prepayment or COD.

One solution to protect your business is to accept a credit card for payment of the invoice within 7 days and let them manage their cash flow challenges behind the scenes with their issuing bank.

The other option is to offer prepayment and if they are not in position for that then I would no longer sell product/services.

Sometimes it takes one supplier to force the inevetible, but you have to protect your business and resources as well.

I agree completely with Rod. If the customer is not a big part of your overall receivable, then the only other possible consideration is do they have the potential to become a big part? Will they overcome their current cash flow difficulties? If your gut instincts tell you the answer to both of those questions is no, then prepayment is the way to go. Even if they don't have cash flow issues but their accounts payables department is managed poorly, that's still an issue you may want to stay away from.

We get what we allow.

In this case, speaking as a guy with 4 years of credit management experience responsible for collecting $2 million / month under his belt, I recommend calling their A/P manager. If you don't get the response you like then escalate to their CFO.

Lead off with an explanation of the trend you've noticed over the past specific period, and that this is not the arrangement you brought them on board with as a customer.

Then pointedly ask, has anything changed? Did someone get hired into an A/P role where they had the authority to and started changing payment patterns?

If they are experiencing financial difficulties, this is the point at which the humming and hawing will begin. That is your signal something is wrong over there.

If a new hire changed payables policy ("I'm helping my employer by ensuring we keep our cash longer!" ... "Maybe true, but you're hurting your vendor relationships in consequence!") that'll come out, too.

The key is to find out the truth of what is going on, and set expectations as to allowable behavior going forward. Delineate clear lines of action with results and consequences. "I need you to get this balance current right away, and follow this payment cycle going forward as originally agreed. If we hit payables at X aged dates, you'll have to be cut off." This isn't being mean: it's protecting yourself.

In this way, even if they continue to slow their payment cycle with other vendors, you will ensure your check goes out first.

If they do not agree to resume prompt payment for you, then you can decide whether to immediately stop extending credit or not. There have to be consequences.

When I started my credit role, I had to educate customers, branch staff, and senior management of my own company that a sale is not a sale until you take the money to the bank. When you extend credit, the customer walks out the door with the product or service. You...in return you have what, exactly? A promise to pay.

Despite pressure from senior management and branch staff to "make sales" by doing what looks like driving revenue by giving customers product, what they are actually doing is increasing liability when it's unbridled handover of assets in return for a decreasingly optimistic belief in the buyer's ability to pay. "A dollar today is worth more than a dollar tomorrow" is a standard accounting phrase beaten into my skull by my accounting instructor (later my finance instructor and then the dean of the school of business--that fellow had real world experience and a good sense of what was needed to succeed!). Your revenue dollars from this customer are walking further and further into the future and thereby becoming less and less valuable.

And it's your decision how much that continues. You will likely need to educate your own staff about what is permitted behavior and what is not. For the first year in my credit role some of branch staff would, despite my locking the customer account down and they thereby being unable to enter orders into the computer system, surreptitiously continue to give the customer product, record the transaction on paper, and then later enter it in after the account was reopened.

I probably don't need to tell you all of the things, from the matching principle on down, that were going wrong there. Whether your people are remote or in the next door office, you need to set the bar and the tone. The branch managers needed to be educated on the effects of what they were doing, and the first time one of them exclaimed to me unprompted that they had NOT given product to a locked-out customer--and that customer was pretty mad about it--was a great day in the financial good sense and solvency of that company.

I'm harping on this a bit because I need you to understand "it's not just them." Not just your customer that's misbehaving. Everybody needs to be on the same page. The faster you get there the better your cashflow and the lower your liability to bad debt will be.

Now understand that I'm a sales trainer and am fully on the side of sales staff and senior management when it comes to the desire to drive revenue. But when you get into bad relationships with product going out the door in exchange for weakening promises to pay everybody gets hurt.

You're right, they could be showing signs of financial trouble -- or they could just be busy / lazy / inattentive to your invoices, which happens often enough in accounts payable departments.

I don't think this alone is enough to warrant cutting ties with a client, but there are a few things you can do.

1. Amend your agreement to charge % interest on invoices after some grace period. This will incentivize on-time payment.

2. Amend your agreement with them to require a personal guaranty, i.e. if the company doesn't pay, the signer is personally liable for the sum owed. I've been told this is an easy judgment to win in court, which means you hopefully won't have to go to court.

3. Let them know that after 21 days you will cease services until their balance is paid.

4. Have an earnest chat with the head of the company. S/he will pass the message along to accounting.

I hope this helps. Let me know if you've tried any of these avenues...