Don't make the same mistake as I did: Protect your small business from a customer's bankruptcy

More years ago than I’d like to admit, I owned a small advertising and public relations business.<span>&nbsp; </span>When I say small, it was just a few freelancers and me, but that didn’t deter me from going after the big fish.<span>&nbsp; </span>Nope.<span>&nbsp; </span>And I finally caught one.<span>&nbsp; </span>My big fish was a rapidly expanding deli chain, and I won all its business.<span> <br><br></span>Wow!<span> </span>There was so much work involved that it consumed me so I didn’t have time to reel in more clients.<span>&nbsp;&nbsp; </span>Then one day, the owners of the deli chain just disappeared.<span>&nbsp; </span>Poof! The headquarters building was locked tight and the owners were nowhere to be found.<span>&nbsp; </span>The company filed bankruptcy.<span>&nbsp; </span>Well, there I was left with thousands and thousands of dollars in unpaid bills to vendors, media outlets and for other expenses -- not to mention the money they owed to me for my work.<span>&nbsp; </span>Not a good situation. Fortunately, I worked out deals with my creditors and gradually paid them off, but it forced me to close up shop.<br><br><span></span>I went back to a job earning a regular paycheck. So what would you do if this happened to you?<span>&nbsp; </span>A customer’s bankruptcy can easily bankrupt your business too.<span>&nbsp; </span>When a customer files bankruptcy, you may be surprised to learn that you have little or no protection under the bankruptcy laws.<span>&nbsp; </span><a rel="nofollow" href="http://www.uscourts.gov/bankruptcycourts.html">Bankruptcy courts </a>are for debtors, not creditors.<span>&nbsp; </span>And business bankruptcies are on the rise.<span>&nbsp; </span>According to the American Bankruptcy Institute, business bankruptcies in the first half of 2008 were 42.1 percent higher than the same period last year.<span> <br><br></span>Now, is the time to take steps to protect your business before it’s too late. Don’t push product out the door on easy credit terms.<span>&nbsp; </span>And if you are dealing with a first-time customer, make sure you check credit references even if you’re <strong><em>sure</em> </strong>it’s okay.<span>&nbsp; </span>Watch for changes in payment habits, too.<span>&nbsp; </span>If a client that normally pays on time, starts lagging behind, you need to consider that a huge red flag.<span>&nbsp; </span>Don’t let them get in too deep.<span>&nbsp; </span>Another thing to watch out for is a break-down in communications.<span>&nbsp; </span>People who owe you lots of money and can’t afford to pay you tend to not return phone calls.<span>&nbsp; </span>And, of course, don’t put all your eggs in one basket.<span>&nbsp; </span>Diversify your client base so you won’t end up closing the doors as I had to do.