Late Payments and Delinquencies

Late Invoice Payments Are Often Built in

Suppliers and their customers have conflicting cash flow pressures. While the customer is always alert to opportunities to extend payments, many late payments are embedded in business processes: For example:

• Orders are accepted and shipped even though they bear conflicting terms, conditions or wrong pricing. Most suppliers base terms on invoice or EDI transmission date, while most customers pay on receipt of goods or EDI, creating an automatic late payment. Other conflicts cause payments to be delayed until the customer can reconcile discrepancies.
• Many – perhaps most – companies have “reactive” collection procedures that kick in only when the receivable is already well past due, which is too late. One client had a policy of commencing collection efforts at 45 days past due, which explained why their DSO was over 60 on 30 day terms. The first thing we did was to automate and advance collection contact to 15 days, in order to retrain the customers.

• Most ERP or Finance / Accounting systems have weak collection tools. They are great at keeping track of the numbers but have little collection planning and automation. Your collection system should automate email notices, sending invoice copies and PODs, schedule telephone calls, and escalate problems.

• Many customers have web or voicemail systems that enable suppliers to verify payment status on invoices, and identify issues before a serious past due situation arises. We have web tools that automatically capture and deal with this information. You need the same.

• There are consultants and software used by your customers to figure out how late they can getting away paying you, largely based on how your credit department follows-up. Other things being equal, the squeaky wheel does indeed get the grease. Your collection efforts set the benchmark for your customers payment procedures.
• It’s a surprise that we still see lots of businesses billing slowly, and every day you bill late is a day you get paid late. Back to the 1980’s, this is the case of the proverbial stack of invoices sitting on the receptionist’s desk waiting for envelopes and stamps, except now it’s late computer billing.

Nothing much changes, it seems.