10.26.2020 | Posted by Erik
9 Surefire Ways to Get Paid Faster
There is much information out there about DSO, ADP, CEI, and other acronyms used to analyze receivable turnover, but rather than focusing on what all that means start with these steps and you will most certainly get paid faster than your industry’s average.
Calling is always better than written communication
Always use the phone to contact customers about past due invoices. Sending a monthly statement is okay, especially if it is standard practice in your industry. Use e-mail when inquiring about past due invoices only when requested by the customer. Use snail mail only to document a specific issue that needs a complex explanation or to make a formal or final demand for payment. Any of these approaches can be ignored, but speaking with your customer is the most difficult for them to avoid. You will be able to extract a lot more information from them about why they are paying late and potentially discover more about the financial condition of their business than you would using a different medium. With e-mail or snail mail, you generally only get a response to the questions you ask. Having to fill a conversation on the phone can elicit information from your customer that you may not be privy to otherwise.
Always call within 5 days past the due date
As your customers anticipate your call immediately after invoices come due, many will get conditioned to expect that and pay the invoice on time knowing that they are about to hear from you. Keep in mind, this first call should just be a friendly reminder to ensure they have what they need to pay the invoice. We call this ‘creating a culture’ within your company, and it gets translated to each customer that you expect to be paid promptly. This attitude generates respect from your customer about how you run your business and how you want to be treated.
Talk to the ‘decision maker’
Speak with the person that can make an actionable commitment to you about your accounts receivable, not the receptionist or anybody other than the A/P person, A/P supervisor, controller, or CFO. Sure, sometimes they hide from you, but be persistent. You can leave a detailed voicemail, but call every day. After the second or third call without a response, ‘go up the ladder’ to a higher authority until you reach a responsible person that will speak to you and can make a commitment to pay.
Keep precise notes
Always document the names and contact information (e-mail, fax, cell phone, etc.) of the people you speak with, especially those in management, so you have that data if the customer becomes a collection problem in the future. Also, keep specific notes regarding what they say about payment – a promise date, reason for not paying, check detail, when will payment be mailed, etc. Document any comments about company’s cash flow issues, financial problems, etc. that they may say to you in an off-hand way. The more notes from past calls you have at your disposal, the more difficult it is for a slow paying account to give you the runaround. Share any negative or concerning information with your credit manager and/or management team.
Be willing to work with your customers
If customers cannot pay in full ask them what they can send. They are more apt to pay the amount they commit to as opposed to what amount you demand. Of course, if their amount is ridiculously small, counter with a higher number and try to reach an amount that makes sense to you, but one you believe can still be fulfilled.
Process, Process, Process
If you have only a few customers that owe you money you can do all of this manually. If you have more than a small number of accounts to work, it is best to utilize sophisticated A/R management software where you can document all of your information and conversations. You want to have a documented trail of past communications with each account so that you can use that data on future calls to eliminate any barriers to payment. If your customer figures out that you aren’t organized in your thoughts or actions, they will use that to delay payment.
Remember your competition
You are in competition with other vendors who are also calling your customer for payment, so using tactics that actually result in payments are extremely important. Speaking with an experienced Payables person that has only so much money available to pay vendors can be a challenge as they know exactly what to say to put you off to a later date. You have to find a way around those diversions to get a commitment on your invoices. Getting on a courteous but firm basis with them is the ideal way. Threatening them is not an effective tactic. Once you have, and they don’t respond, you have painted yourself into a corner. Only do that as a last resort, and only if you are serious about following up with legal action in order to get paid.
A single voice is best
It’s best to have the same person in your office making calls to the same customers. Constantly using different employees merely gives them the ability to start the collection process all over again. If the customer requests additional information – like an invoice copy, proof of delivery, or some other information or documentation – ensure you get that to them the same day, or next day latest. Then call one day later to again request payment. Don’t assume the check will just be sent. If they are asking for documents as a stall tactic they will delay as long as possible.
Find the right employee to make the calls
Collecting open invoices can be challenging, so you need to find the person in your organization that is most open to calling people for money. Some employees tolerate it, others hate it, and some, dare I say, actually enjoy it. The vast majority are at least somewhat uncomfortable asking a customer for money and if they have other tasks assigned to them in your office, calling the past due customers can be something they put off to the very end of the day. Collecting should be the first thing they do each day and, if at all possible, this should be their only job. If that is not possible due to the size of your company, it should be the highest priority task they perform each day.
Utilizing the above tactics are paramount to keeping an aging clean with minimal past dues. Collecting AR is never a fun job, but it is absolutely necessary. Every extra day a customer takes to pay adds stress, costs you money and negatively affects cash flow. If you want to find out just how expensive it is to be paid slow, our blog How Much Are Your Receivables Costing You? only begins to scratch the surface. Keeping your A/R aging clean helps keep your A/P aging clean, reduces stress on your accounting department and your vendors, and creates cohesion among all of the partners in your supply chain. Don’t be an interest-free loan for your customers. Just a few small steps can go a long way.