05.03.2017 | Posted by Erik
Customers Paying Slow? Fix These Issues First
Are you struggling with customers who take their time in paying your invoices?
You’re not accurately conforming to the terms of your customer’s purchase order.
It would be convenient if every customer would pay according to the information on YOUR invoice, but unfortunately, it doesn’t work that way. When you’re dealing with established companies, you must follow the guidelines laid out in their PO. If you ship to majors (Nordstroms, Macy’s, etc.) this is especially important, as it will not only mean slower payments but deductions as well. Some purchase orders have pages and pages of specific directions, others are short and to the point. As soon as customer service or sales accept that PO, the terms are binding.
Make sure to review POs in advance and discuss any changes ahead of time, doing so after the fact will cause delays, and likely have no effect.
Always be sure to review:
- the payment terms
- start ship date
- cancel date
- logistics info
- any invoicing/billing directions
Generally, whether or not you can change anything in the PO depends on how badly the customer needs your product but is always worth trying. If you can’t change the accounts receivable terms, make sure the key members of the order to ship cycle are aware and on board with the customer’s demands. It should be a collaborative team effort from the beginning.
Your customers aren’t creditworthy.
Do you have a process in place to not only thoroughly vet new customers but to review regularly all your customers for current creditworthiness? If not, in today’s retail environment, you’re taking a huge risk.
Customers who we assume are healthy can file for bankruptcy and close stores at a moment’s notice. A quarterly review of the important credit indicators on all large balance debtors is a must when it comes to accounts receivable management. Constant monitoring of slow paying customers and poorly credit rated accounts helps reduce exposures on those most at risk to fail. This can be a time-consuming endeavor without the proper processes in place. Set credit limits with expiration dates so accounts come up automatically for review to better protect your company from bad debt.
Invoices are not sent timely or not to the correct person/location.
There are so many options today for getting your invoices to the person that pays the bills. If you’re not taking advantage of the best way for each customer, you’re sure to be paid slower than your competitors that do. For every order that comes in, you should have a process in place to find out where the invoice should be sent. If available, review the PO as it will likely have information related to billing. Make it easy for your customer to include on their order form where and how the invoice should be sent. Work with your AR team to ensure their contacts in A/P are receiving the invoices.
There are issues with your product or service.
If your goods are defective, service isn’t being provided as agreed, or your product isn’t selling, your customer will drag their feet on paying open invoices. Make sure your return process is straightforward, uniform and easily managed. Your customer service and sales team should be the front line for fixing these issues and making sure your customers and clients are happy. If they’re not, that funnels down to the payables department and your competitors with less unresolved issues will be paid first.
Your AR process is poorly managed.
Lost invoices, A/P approvals, and missing PODs should be rectified immediately. Your AR management team should have a regular scheduled timeline for follow ups, not to harass your customers for payment, but to remove any legitimate barriers for payment. The AR team should have familiarity with their A/P counterparts and have a good working relationship with them. The entire AR process should reflect the values of your company. When A/P starts calling you because they’re missing an invoice or need a POD, rather than the other way around, you know you’re on the right track.
If you don’t currently use one, implement a 3rd party app to help manage your AR, or if your accounts receivable software comes with a good one, use that. Schedule follow-ups and make sure you stick to them, as soon as a customer knows you won’t follow through, they will take advantage. Since slow payers often set up multiple barriers before making a payment, it’s important to have a record of previous conversations to help break these down. If you’re disorganized, your customer will know, and your invoices will end up at the bottom of their pile to pay.