There's an old adage in risk management: anything pending is a potential liability.
Top-notch business risk managers design processes that complete tasks; when awaiting customer input they set a date-certain response and follow up. Inaction creates uncertainty, and uncertainty creates risk.
One common form of the pending dilemma appears as accounts receivable. Business owners often discover that not every customer pays on time, and unpaid invoices can signal deeper issues.
Two basic truths
- The company made a poor credit choice and extended terms the customer could not meet.
- The customer, in hindsight, does not value the product or service as much as expected.
Before assuming fraud or blaming the economy, examine the situation using the first observation above: was credit extended without sufficient vetting? If not, explore the second possibility — that the customer is dissatisfied for a legitimate reason.
Investigate non-payment promptly. Was the customer over-promised results, or was the product defective? Minor disappointments are usually not liability issues, but misrepresentations or safety defects are.
Timely after-sale follow-up serves two purposes: it reduces past-due receivables and helps detect quality or service issues before they escalate.
If your company is low on a customer's priority list for payment, there is a disconnect between perceived value and delivered value; that disconnect can grow into liability claims if left unresolved.
To protect cash flow and reduce exposure, consider insurance options tailored to receivables such as Accounts Receivable Insurance (Trade Credit Insurance) and operational services like Receivables Management Insurance.
Document follow-up efforts, investigate complaints quickly, and if needed, talk to an agent about coverage or risk-transfer strategies specific to your business.
Frequently Asked Questions
Why should I investigate a late-paying customer?
Investigating reveals whether non-payment stems from credit issues, dissatisfaction, or defects, allowing targeted remediation and reducing future risk.
What is the difference between credit risk and product liability in receivables?
Credit risk arises from a customer's inability to pay, while product liability involves a defect or misrepresentation that makes non-payment legitimately tied to performance or safety concerns.
Can insurance help with unpaid invoices?
Certain insurance products are designed to protect receivables and help transfer the financial risk of non-payment to an insurer.
When should I involve an insurance professional?
Engage an insurance professional when late payments persist or when you identify systemic gaps in credit or quality controls that could threaten cash flow.