7 Reasons Why Your Customers Don’t Pay On Time
You have control over so much of your accounting work. You can send invoices and pay bills on time, get payroll out accurately and submit payroll taxes when they’re due, post payments promptly, and make sure that you always have the right amount of inventory.
If your cash flow is still suffering, though, it may because of something you can’t control: how quickly your customers pay the invoices you send. Here are some reasons why that may be occurring:
1 – Your credit policies are too liberal.
Are you extending credit to people who shouldn’t have it, or setting their limits too high? Credit should be a privilege that is earned. If you start offering credit right off the bat without knowing anything about customers’ credit histories, they may take advantage of your generosity.
Once you feel comfortable letting customers make partial or extended payments, be sure that your related policies are spelled out in detail, especially the penalties for late or below-the-minimum remittances.
Not sure how to assess finance charges, or don’t have the tools to do so? Talk to a tax advisor.
2 – The language in your invoices isn’t strong enough.
“Payable on receipt” almost guarantees that your bill will move further back in the stack. Set a firm deadline and spell out the consequences for non-compliance.
Be friendly but clear from the start. When customers’ compliance starts to slip, you can accelerate your use of emphatic wording as you attempt to collect the debt. If you must resort to a collection agency, ask to see samples of their communication style first. You don’t want to subject your customers – who may indeed come back to you once their bills are settled – to an unnecessarily unpleasant experience.
3 – Your product quality is slipping.
Let your manufacturing people or service providers know that quality has become such an issue that some invoices aren’t being honored.
4 – You’re not delivering as fast as you could.
You don’t control the individuals charged with fulfilling orders. Still, you’re responsible for keeping cash flow humming. So you might suggest to management that new procedures should be put in place.
At the very least, you could add a line to invoices that says something like, “Was the delivery of your products later than you expected (or were promised)? Timely fulfillment of orders is important to us. Please contact us at [email address or phone number]. Take advantage of every opportunity you have to convey that the company cares. Customers may feel like they don’t have to pay on time if you didn’t deliver on time.
5 – You aren’t offering payment options that are convenient enough.
This is easy enough to fix. Here again, a tax advisor can help. Accounting applications like Wave offers an easy way for customers to pay you, including taking credit/debit cards and electronic payments.
6 – Customers don’t feel like they have a relationship with you.
You expect customers to pay on time. Customers expect you to fulfill your side of the equation by providing as-promised products, delivered – or available for pickup — within the stated timeframe.
Your customer service individual or team is critical here, as is the use of a customer relationship management (CRM) application that lets you share a thorough profile of each customer with the employees who need access. When they call or email, they don’t want to be treated like a stranger.
7 – The wrong item was sent, and the customer doesn’t feel like packing it up and shipping it back.
Make returns as simple and frustration-free as possible. If an inexpensive item was sent by mistake, let them keep it while you quickly ship the correct one.
Work to be dilligent about the customer complaint/feedback loop so you can better understand what’s going on when you can’t collect. You can’t fix it if you don’t know which part is broken.
As a small business owner, you’re wearing a lot of hats. Let us take one off your plate. At Block Advisors, we offer small business services year-round, with experienced and trusted tax advisors.