Fix Late Payments, Without Souring Your Customer Relationships
Here are some of the key ways AR teams can improve customer payment behavior, without causing unnecessary escalation.
Finance Director: “They still haven’t paid?”
AR Clerk: “Nope, and they’re not responding to any of our messages.”
Finance Director: “Right, that’s it! I’m calling them until they answer and giving them one last chance to cough up. If the money isn’t in our account by the end of today, they can wave goodbye to their Wordle subscription.”
Ok, this isn’t an authentic transcript. Not least because The New York Times’ popular word game isn’t charging players just yet.
However, it does represent a significant issue for finance departments. Today, 93% of organizations receive late payments from customers and this causes more than a few headaches among AR teams. Not only can they stall a company’s growth, but in the worst case scenario, they can also set a business on a path of financial decline that ends in insolvency.
So, it’s no surprise that our fictional Finance Director is frustrated. However, they need a different approach. The unfortunate reality in accounts receivable is that customers don’t always pay their bills on time and this needs to be addressed without souring or ending relationships. This is particularly critical at a time when once-loyal customers are leaving once-preferred companies in their droves.
How can AR teams improve customer payment behavior, without causing unnecessary escalation? Here are some of the key ways to protect your relationships, as well as your cash flow.
It starts with setting a clear payment policy. When you provide comprehensive terms from the get-go, it helps reduce complexities down the line, especially since some customers will want to negotiate.
These terms should be reflective of your customers’ creditworthiness. You need to balance making the policy strict enough so that you’re not stung by slow or non-paying customers. But it also needs to be flexible enough to encourage businesses to work with you.
Committing to approving or rejecting credit applications within a certain period is essential. Often, companies lack policies around how long it should take to turn around applications. If the time frame isn’t enforced, it can result in lost sales and also start relationships off on the wrong foot. All customers prefer a fast and efficient interaction and any time spent not driving revenue is time that’s costing them money.
We also recommend outlining any payment incentives your company offers such as dynamic discounting. This shows that you value your customer’s business and are committed to making your partnership a success.
Today, organizations are investing in automated solutions to accelerate sales and mitigate credit risk. These enable AR teams to quickly and comprehensively assess customers to make informed decisions.
“In 2022, credit management is a critical focus for all businesses. For optimum impact, firms need solutions that are simple to use and highly automated to determine the correlation between credit decisions and revenue growth.”
Kevin Permenter, Research Director, Financial Applications, IDC
You know an awful lot about your customers. Through collecting information on their organization, their buying patterns and their payment preferences, you have a history that shows when they buy, how much they spend and when they pay. This gives you insight into their business and their health.
You need to doggedly drill into customer data!
This information is gold dust and can help you to build stronger relationships. To get to the heart of it, you should look at two important slices of data.
- Customer segmentation: Create segments of your customers that make sense for your business. You might look at their organization by revenue or employees, or you might analyze what their spend is with your business. This helps you understand their behaviors and patterns.
- Behavior patterns: With these, you gain useful insights, such as what their payment habits are or what communication style they respond best to. You may find that email marketing is more effective, or perhaps they prefer being called. This allows you to meet your customers where they are.
By following the steps above, it creates a tailored approach that will make your customers feel valued. Most companies care a great deal about facing any late fees or tarnished credit scores as a result of their failure to make timely payments. Not only does taking time to understand your customers' circumstances help to protect both of you, but it can also go a long way in preventing potential lapses.
A platform such as YayPay will aggregate all of this information into one easy-to-use interface so that you can manage your business performance, monitor your customers’ payment health and generate data-driven decisions.
This instruction sounds obvious, but many companies still struggle to invoice customers on time. The inevitable outcome of this is slow or non-payers. However, it can also lead to another damaging issue.
While your customers might initially be happy that you’re not hounding them for money, inconsistent communication might also send them a signal that their business is being neglected. In a market where B2B buyers are leaving suppliers that don’t offer personalized service, this can create a bad impression.
Don't let your customers feel like they've been forgotten...
Common obstacles to an effective billing process include missing — or insufficient — data, or a discrepancy in cost or quantity. Using an intelligent AR solution helps address this issue by consolidating all information from your ERP, CRM and billing systems onto cloud-based dashboards that can be accessed from anywhere. All changes are recorded in real-time and teams don’t have to exchange information back and forth.
PWC identifies speed, convenience, consistency and friendliness as the ingredients for a great customer experience.
The accounts receivable payment process can often offer the opposite. 25% of B2B payments are made by paper check — and these have significant drawbacks. For you, they’re expensive and slow, costing US$4 to US$20 to process and clearing 5-10 business days from when they’re sent out. For your customer, it’s challenging to confirm whether a check has been received and processed, limiting their cash flow visibility.
43% of consumers would gladly pay more for convenience and it’s important that companies make the vital connection between flexible payment processes and improvements in customer behavior. This statistic also illustrates the importance of offering an omnichannel experience, as opposed to a single payment option.
Flexible payment options delight your customers
The recipe for success can be found in a customer payment portal, opening up a direct communication channel between you and your customers where they can access their account, view invoices and easily reach out to you for assistance.
They are also able to manage transactions directly from an online invoice, which further streamlines the process. Portals offer a range of options from ACH to credit cards which can greatly reduce the time it takes to receive payments. Ultimately, your customers have a variety of ways to get you paid, which opens up their access to cash, as well as yours.
If all this sounds too good to be true, perhaps you'd like to see it for yourself? Contact our experts to learn how you can put automation at the center of your credit-to-cash process to collect cash faster.