Friday, 25 October 2013

The Non-Payment Trifecta

Over the 29 years I’ve spent in the accounts receivable management industry, the vast majority of reasons a creditor experiences a slow-paying customer boils down to one of three issues: They are:

1.       Sticker Shock/Dispute

Take for example an I.T. company that is contracted to install a new software application. Only after the installation does the software company realize that the customers network is not configured correctly, requiring the customer to either abandon the purchase or upgrade some hardware. Either decision will cost the customer money they hadn’t expected. The same scenario plays out all over North America each day and affects every industry. Therefore it is absolutely vital that creditors work very hard to manage expectations early in the relationship.

2.       Invoice Inconsistencies

Many large customers are now automating their accounts payable systems to save themselves money through the outsourcing of this back office function. These automated systems are all different requiring suppliers to become subject matter experts on their customer’s payable systems! If your invoice isn’t coded correctly or doesn’t contain certain signatures or purchase order numbers, the customer doesn’t call you to ask for help. They simply leave you to figure that out for yourself. This process causes payment delays to your invoice. And once your invoice is received correctly then the customer takes another 30 days to pay.

3.       Simple Pressure Required

The third involves a customer who is initially delaying paying your invoice due to a cash flow problem. This customer knows that trade credit is much easier to get than bank credit, so he uses his suppliers as his bank. Often a polite but firm telephone call is all that is required to receive your payment; however this customer’s financial situation may be more precarious than even he anticipates. In this case the creditor who acts first – gets paid and those who wait – don’t.

More and more companies are embracing the idea of outsourcing their credit and accounts receivable management functions rather than maintaining staff, lease space, technology, and training on their own. Should you consider outsourcing your credit and accounts receivable functions – it is vital that your provider clearly understands the above-noted concepts and can skillfully navigate their way to obtaining payment and serving your customer or help you to quickly identify a problem customer and guide you to consider the appropriate actions before it is too late.

About The Author: Brad Lohner is a 29 year veteran in the accounts receivable management industry in North America. He owns Credit Process Advisors, a credit and collections consulting company, as well as two commercial debt collection agencies in the USA and Canada, along with Lien-Pro® Canada’s only construction lien filing firm.

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