Everyone Pays Until They Don't: Protect Your Cash Flow From Surge in Bankruptcies - Financial Training for Business: Online Education, Convention Speakers, Thought Leaders

“Everyone pays until they don’t.” This blunt reality from credit expert Thea Dudley should wake up every business owner extending credit to business customers. With Q1 2025 bankruptcy filings showing a dramatic 12.74% increase in Chapter 7 cases and over 30% spikes in some regions, the writing is on the wall: your customer’s payment history is no guarantee of future performance.

The perfect storm is brewing. Inflation and rising interest rates have squeezed both consumers and businesses. Personal debt loads have climbed while consumer demand weakens. Many companies still owe pandemic-era debt just as government support structures expire. And impact of pending tariffs threaten future profitability.

If you extend credit to customers, you need to act now. Here is your emergency playbook.

The Foundation: Know Who You’re Dealing With

Subscribe to a commercial credit reporting bureau immediately. Don’t just glance at credit scores—learn to read the full reports. Examine payment histories, liens, and judgments. Look beyond the numbers to understand the story they tell.

Pull reports on every existing customer, not just new prospects. That loyal client who has paid promptly for five years? Their circumstances may have changed dramatically. As Dudley puts it, “The length of time someone has done business with you is not an indicator of how they will pay you in the future.”

Monitor bankruptcy filings religiously. If a major customer files for bankruptcy, every day you don’t know costs you money and options. Use resources like BKWire or Bankruptcy Watch to stay informed. For a complete list of Dudley’s recommendations, see Resources at the end of this blog.

Your Daily Defense System

Report your own accounts receivable to your credit service. This automatic reporting gives you access to broader credit information that shows who your customers are paying—and more importantly, who they’re not.

Verify business licenses for new customers. No current license? You’ll have limited recourse if they don’t pay. This simple check could save you thousands.

Ignore trade and bank references. They’re worthless as proof of payment ability in today’s environment.

The Weekly War Room

Create a one-page Accounts Receivable aging report with clear columns: Current (under 7 days), 7-to 30 days, 31-to 60 days, and beyond. Review the aging schedule each week with your team and agree on how to handle communications about new jobs and past due invoices.

Here’s the non-negotiable rule: Take immediate action on anything past current. Decide in advance who takes action, what that action will be, and how results get reported back. No exceptions, no delays.

Speed Kills (Bad Debt)

Invoice promptly and accurately. Your accounts receivable balance only includes invoices billed. How long does it take to generate that accurate invoice? Every mistake gives customers an excuse to restart their payment clock when you send corrections.

Monitor these critical KPIs:

Percentage of completed customer credit profiles
Days to produce and deliver invoices
Invoice error rates
Accounts over current – number of accounts and amounts due

Trust Your Gut

“If your gut tells you something is happening with a client, no matter how long-term or loyal, follow up and investigate,” Dudley advises. Speak to customers regularly. Adjust payment terms when warning signs appear.

Remember: “Friends pay on time.” If someone consistently doesn’t pay you despite your relationship, you’re not in a business partnership—you’re in an abusive relationship. Get out.

When Push Comes to Shove

If your collection efforts are not producing payment, don’t let the situation drag on. Sell the account to collections or contact an attorney. Every day you wait reduces your recovery chances.

Most importantly, internalize this truth: A sale is not a sale until it’s collected. That revenue you’re celebrating? It’s just a promise until the check clears.

Your Next Move

Review your current credit policies today. Do you have commercial credit reporting in place? Are you monitoring bankruptcy filings? Is your accounts receivable aging report generating immediate action?

The bankruptcy wave is here. Your customers’ financial stress will only intensify as economic pressures mount. The question isn’t whether some of your customers will face payment difficulties—it’s whether you will be prepared when they do.

Don’t wait for the phone call to learn a major customer just filed Chapter 11. Build your defenses now, because in credit management, the best defense isn’t just good offense—it’s your business survival strategy.