Customers that don't pay on time often provide excuses when it comes time to follow up. "We never received an invoice" was the No. 1 answer (88%) for not paying on time, according to a recent eNews poll. The second most-common excuse (78%) was "We cannot pay until our customer pays us."
Other excuses included:
- The invoice is incorrect. (45%)
- The materials were damaged or defective. (35%)
- Other filled-in excuses. (18%)
- We never received the order. (15%)
- Our systems are down. (13%)
So, what's the best way to respond to these excuses and what measures can you take to limit the number of excuses you receive? Several credit professionals pointed out it starts with knowing your customers' businesses and maintaining continuous communication.
Find out if the customer's excuse is legit and whether your company needs to correct something, said Andreas Schmitt, director of group credit management at Rational AG (Germany). Get to the point where you can say, "Now that this has been clarified, when can we expect the payment," he said.
If a customer claims it never received an invoice, immediately resend it, said Tim Pearson, credit manager at Bama Concrete Products Company, Inc. (Alabaster, AL). More than 50% of his invoices go out automatically, but his department manually resends those that customers say they didn't get to make sure they are received.
Schmitt resends them via email and again asks when payment will be made. Always try to finalize your follow up with an agreement on an exact payment date, he added.
If payment is for a large project and a customer says it cannot pay until its customer pays, Betsy Rhodes, CCE, treasurer at Metal Specialties, Inc. (Odessa, TX), tries to work with her customer to maintain a positive working relationship. For example, this could mean establishing a payment plan.
Pearson, however, monitors a customer's situation closely after it notes that it cannot pay until it receives payment. For him, that sometimes means putting more pressure on the customer by sending notice letters throughout the process.
Some of the other excuses provided by credit professionals included:
- The accounts payable department has COVID so no one can do anything.
- We are changing accounting systems.
- Another company is buying the customer's company and the new owner is reluctant to pay.
With these types of situations, Rhodes suggests contacting customers weekly to ask follow-up questions that might get you paid—even if it is only because they want you to stop contacting them.
Knowing your customer can help avoid some of these situations. "If you know your customer's financial situation is rather weak and it is involved in a big project where its customers usually pay after 60 days, it does not make sense to grant a payment term of only 30 days," Schmitt said. "Know your customer's business and grant terms that are challenging but also fair and achievable."
Check credit reports and with trade groups and industry groups, Rhodes said. "I put more stock on that than credit references on credit applications." It also helps to establish and maintain a positive working relationship from the start, she continued.
"Do not just communicate with your customers when they are past due—let them know you appreciate their orders and their business," she said. "When we have a new customer and the invoice is sent to them, we will call them and ask 'Did you get it? Did we do everything you wanted us to? Is there anything we can do to make your job easier?'"
Before selling, credit professionals also can push for establishing payment bonds, Pearson said. "This makes everyone on the job aware that you are applying pressure for them to pay."
Schmitt suggested three additional steps for reducing the number of excuses from customers by sending:
- Invoices electronically—use emails with pdf attachments instead of sending invoices via snail mail.
- Regular account statements—add a friendly comment such as "Please check your postings against this statement and come back to us in case of deviations, so we can clarify this before running into overdues."
- Pre-mature reminder—for the well-known late payers, call a couple of days before the due date of substantial invoices.