3 Red Flags Salespeople Should Be on High Alert for with Prospects

12/15/2022
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Working in sales isn’t for the faint of heart. Your job performance and earning potential depend on your ability to close deals.

 

While I get that closing deals is mission-critical for you, it doesn’t mean you should ignore red flags with prospects. Let’s be honest – not every sales lead is going to be the right fit. You should be vetting prospects just as much as they’re vetting you.

Tell me if this scenario sounds familiar at all to you. You’ve spent months and hundreds of hours pursuing a lead. They match your ideal customer profile. They have an immediate product need and intend to buy soon. Sounds like the perfect sales deal, right? Not necessarily. There could be red flags that you either don’t see or are ignoring because you want to close the deal. But the truth is – you could end up losing that deal because of those red flags.

Let’s explore three red flags you should be on high alert for when pursuing prospects.

Chapter 1

Red flag #1: Your prospect is hesitant to agree to Net 30 payment terms

Negotiating contracts with new customers is never fun. But it’s absolutely necessary so neither party is left in the lurch should the situation change, or should the customer fail to pay their invoices on time.

One of the key clauses in a new contract is payment terms. Most businesses use a Net 30 payment terms, which means that customers must pay within 30 calendar days of the invoice date. If a company is worth its salt and has a good handle on its finances, then there shouldn’t be any issue with agreeing to Net 30 payment terms.

Invoice payments

But not all prospects will be so keen. In some instances, you’ll find prospects saying they can’t and won’t agree to Net 30 terms. For example, I worked for a company that refused to pay earlier than Net 60 with all vendors. In that case, this reluctance to agree to Net 30 terms had a lot to do with the company’s cash flow (or lack of it). As they had many vendors to pay and tended to spend their money recklessly, they often found their cash flow at a lower than optimal level. That led to their refusal to pay vendors on Net 30 payment terms.

I’m not telling you this story to shame a company. I’m telling you because it’s a perfect example of how simply refusing to pay invoices on Net 30 payment terms is often a red flag of something far worse. It’s often an indicator that the company isn’t doing a good job of managing their financials and keeping their cash flow healthy. So, if you see this red flag and ignore it, you could end up with a customer who either pays their bills late regularly (or even goes into default for not paying at all). So even if the deal seemed like it was valuable for the business at the start, it’s actually costing the business in the long-term.

Now, that doesn’t mean every company that’s hesitant to agree to Net 30 payment terms is doing so because they have poor financial health. It could simply be part of their credit policy and to account for a large volume of vendors that need to be paid regularly. What I’d suggest is that you talk to your prospect about it – ask them why they’re so reluctant to agree to Net 30 terms. Help them see how Net 30 terms can actually work in their favor and help them build and improve their payment history, raise their business credit score and even increase their credit limit.

Chapter 1

Red flag #2: Your prospect gets defensive when you run a credit check on their business

Credit checks are part and parcel of life these days. In our personal lives, we can’t do much without them. We need them to get approved for credit cards, loans and mortgages. They’re just as important in the business world as they are in our personal lives.

But both people and businesses can get upset when a company asks to run a credit check on them. It’s been known to evoke a lot of emotions and make people feel antsy. I get it. But businesses can’t be so finicky – they need to rise above it. So, if your credit team tells you that you need to run a credit check on the business before they can even be considered a viable prospect and your prospect gets defensive, that’s a red flag you don’t want to ignore.

If a prospect feels uncomfortable about you running a credit check on their business, it could be a sign that their credit report will uncover several issues, including frequent late payments, a low credit limit, court judgments, bankruptcies or even compliance violations. Now, if you review their business credit report and all looks to be in good shape, then they might have just been uncomfortable with it.

But if you run the credit check and uncover any of the aforementioned issues, then that’s your sign to alert your credit control team immediately. Make sure they have visibility into their business credit report and ask them for their guidance. They might be willing to accept the prospect as a deal but will add specific clauses in the contract to protect your business. But you might also find that your credit control team won’t be so flexible and will tell you that this prospect simply won’t get approved. So, it’s better you don’t waste your time on a prospect that’s just not going to convert into a sales deal. 

Credit report
Chapter 1

Red flag #3: Your prospect can’t explain negative records on their business credit report

Did you know that nearly three out of four US businesses were negatively affected by COVID-19? To say businesses have been fraught with challenges is an understatement of epic proportions. And with rising inflation rates and energy prices, the outlook for businesses isn’t looking all that optimistic. Businesses are likely to struggle with cash flow, making it tough to pay their bills on time.

While I completely understand that everything can’t and won’t be peaches and roses as a recession looms over our heads, that doesn’t mean you should overlook negative records on a potential customers’ business credit report. When I say ‘negative records,’ I’m referring to things like tax liens, court judgments and bankruptcies, to name a few.

If you see any of these on your prospects’ credit report, then you need to dig a bit deeper. Talk to your prospect and get a better understanding of the context behind them. Are they all accurate? If some are inaccurate, then your prospect needs to contact the appropriate lenders and resolve the issue so any inaccurate negative records can be wiped off their business credit report.

But if you see negative records and your prospect simply can’t explain them or denies that they exist, then that’s a major red flag. If their credit report is showing the negative records, but your prospect still denies their existence, that’s a big trust issue already before you’ve even begun working with them. I’d be weary of starting a working relationship with any business if the trust isn’t there already. Don’t ignore your gut feelings either. 

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