To be successful in accounts receivable collections, you must be proactive and remain observant in order to identify underlying problems with both your customers and with your own internal processes. By catching these issues early on you can avoid them ballooning into more serious problems. When your customers give you feedback, don’t just take it at face value, consider what they may be holding back or what that means about the way you manage collections. Ask yourself, what is the customer REALLY saying? and how are your internal processes impacting your accounts receivable collections? Here are just a few examples to consider:
If your customer says: “We paid within credit terms” when you know that they didn’t, it could mean one of a few things:
- Your invoice and terms were unclear to the customer and they might actually believe they paid you on time. This is a very common occurrence, especially if they only take a quick glance at your invoice. One way to avoid this is by putting a prevalent due date on the invoice in addition to the terms and conditions.
- They mailed the check on the due date thinking that your terms would be flexible enough to allow for the travel time.
- They are aware of the fact that they didn’t pay on time but won’t admit it. At this time you need to wonder if this customer is having financial struggles, if you need to run a credit assessment, or if offering incentives for early payment might encourage them to pay you before other vendors.
When they say, “We didn’t have enough time to process payment” that is a red flag that your processes may be to blame:
- If they are right and you didn’t send the invoice soon enough for them to pay you on time, you need to take steps to invoice customers faster.
- The customer agreed to shorter credit terms, but due to internal accounts payable processes or lack of organization they are unable to pay within the established terms. Perhaps you need to revisit the subject with them and figure out how to solve this problem.
- The customer waited until the last minute or forgot to pay the invoice on time because you did not follow up with them to remind them of an upcoming due date.
- You don’t enforce your credit terms or the consequences of late payment and the customer has learned that they can wait to pay you only when you call to ask for the payment.
When they say, “We didn’t get the invoice” that is very likely to be true. In fact, a recent industry study found that 46% of invoices are paid late because of these administrative errors- not because of a customer’s inability or unwillingness to pay. You might want to consider the following:
- You forgot to enter the sales order or the invoice into the system and they truly didn’t get the invoice.
- You entered the sales order or invoice in your accounting system but you failed to send it to them.
- You sent it to the wrong address.
- The invoice was received by the customer but was not delivered to your contact. It is important to regularly update contacts in case of a shifts in their A/P department and make sure to update that information in your system.
- They received the invoice but misplaced it. Following up with customers on invoices can bring these situations to light before the due date so you can send them a copy.
- You sent them the invoice but it was lost somewhere between your office and theirs. This is another avoidable situation if you follow up with customers to ensure invoice receipt.
- They received the invoice but are lying about not having it because they are not prepared to pay it.
While some customers may not be telling the truth about why a payment is late, a majority of them are being honest and your invoicing and collections processes are very likely to blame. There are some very simple things you can do to fix these problems and avoid situations like those described above that will help you smooth the A/R process not only for you, but for your customers too.