First and foremost – be sure you are not in the wrong. Be 100% confident you have delivered the work as agreed and the invoice you sent out is error free; – be sure any payment delay is not actually because of some problem you have initiated.
Have you delivered on time? Did the product/service live up to the standard expected? Was there good customer service follow-up?
Don’t expect your clients to pay your bills on time if you didn’t stick to your word and do what was agreed either.
If the reason for the payment delay is a genuine quality problem, an error in the invoice, or some other mistake or issue at your end, it should be quickly addressed and rectified with an agreement for prompt payment. You probably wouldn’t pay a bill with errors or for goods or services that are not what you needed or wanted – so don’t expect your customers to be any different.
Next, understand the type of debtors you have and start responding and even anticipating their excuses to really improve your cashflow. Although there are 5 Debtor Excuses I have broken these down into two groups, according to the best solution required.
A. Messy Debtor Excuses
This group are not ill intentioned, they are a bit messy in how they run their own worlds, and that mess can impact your business if you don’t watch out. They are easily resolved by putting in place great systems and procedures at your end, your efficiency will thwart this groups’ standard excuses for not paying.
1. CARELESS DEBTORS
If the client ‘forgot’ to pay the invoice or did not understand the firm’s trading terms – then this is partly your fault for not making what you expect clear enough. It is very important to set your business rules from the beginning, before you even start work, and preferably as you are making your pitch. If you are not making your payment terms clear, and then giving prompts and reminders to reiterate your terms it is all too easy for any debtor to genuinely forget your invoice is due.
2. DISORGANISED DEBTORS
Some people are truly inefficient, with chaotic money management that means they only pay creditors “once they start chasing us”. If you do not have a reliable system of invoicing on time, sending regular and timely prompts and reminders to reiterate your terms these debtors will simply not know your invoice is due.
B. Mean Debtor Excuses
These next three ‘excuses’ are a bit trickier because this group of Debtors are intentionally treating your business as an interest-free banking facility and can go as far as abusing your business; these excuses are less like a ‘reason’ and more like a ‘delay tactic’. All of the following excuses are best resolved by tackling the relationship and type communications you have with these debtors.
3. ‘BROKE’ DEBTORS
Things happen, and sometimes cash becomes scarce… But someone else’s problem shouldn’t necessarily be yours as well. When you are initially discussing the deal listen carefully to your customers’ specific constraints, values or any requirements they are likely to need you to comply with. Ask questions and then listen; steer the conversation around to how prosperous things are for the client, delve into their intent or habits about paying on time… People who are slow payers will most likely be slow in paying you too, and if you know this early you can negotiate accordingly.
4. UNCONCERNED DEBTORS
These customers are ‘too busy’ to worry about the overdue invoices. You are interrupting their ‘important work’ when you phone them about it, and that attitude is not helpful to your good ongoing professional relationship. Again, stay aware of how they relate to you during your preliminary discussions, and any ‘habits’ they may have around not paying on time.
5. DISHONEST DEBTORS
Some people are not GOOD, and will contract you with no intention of ever paying you. Don’t let debtors like these get cause your business problems – by acting quickly, stopping further work and if necessary taking legal action, you can make sure your business is not damaged. Don’t if you believe a debtor is dishonest then remember you don’t actually have a customer/supplier relationship; you have become a benefactor of their business because in their mind you are DONATING them your time, goods and services – so you’re probably better off without them.
A. Messy Debtor Solutions- Have Great Systems
Use this solution for:
1. Careless Debtors
2. Disorganised Debtors
Having really good systems and processes at your end will go a long way to preventing these two excuses impacting your business.
Great Systems help support your cashflow
Set the rules of the game and then insist everyone follows them – improved control over your invoicing leads to healthier cashflow.
- Use very clear terms and conditions AND REPEAT THEM – regularly remind your customers of what you are expecting. Hand your payment terms to customers when you do the quote, print a copy of your payment terms on the back of your invoice, re-send payment terms with your invoice reminders. Establishing a clear policy and communicating how you expect everyone to stick to your policies leaves little room for careless and disorganised excuses.
- For quicker payments, set-up multiple payment methods – use EFT, PayPal and other electronic payments. Highlight all these opportunities to pay in your terms and on invoices and make it as easy as possible for your clients (and giving them less reasons for excuses).
- Post AND Email your Invoices – Emailing reduces the risk of delay, or the “lost in the post excuse” – but you can end up with your invoice in the in-box of someone on leave. Snail-mail is more difficult for you to monitor when it was received and opened, but it seems a piece of paper is harder to ignore than an email.
- Create an Incentive– using a small discount for on-time payment can be a great way to hurry things up. Large electricity companies have been doing this for years. A 1 – 3% discount is probably less than the cost of funding and chasing your overdue debts and therefore money will spent upfront.
- Include some peer pressure– include a note on your invoices saying something like “80% of our customers take advantage of our on-time payment discount – this keeps our debt collections and bad debt costs low which keeps our prices down for everyone.” You may be surprised what a bit of peer pressure can do.
- Be methodical – consistency is the key here, so stick to the same approach for debt collection each time you invoice. An example Collection Pathway might look like:
- Known Careless and Disorganised Debtors: at 2 days before due issue an SMS reminder, or email: “A quick note to let you know your invoice is due tomorrow and remind you to take advantage of our “pay on time” discount”
- All Debtors: at 5 days overdue, re-email the invoice, with a reminder call: “this is a courtesy call to say you have unfortunately missed the “pay on time discount”, however if you pay in full by COB today we will do xyz (this can be a choice of continue work, or not charge any late fees, etc)”