Just like customers are the life-blood of an organisation, cashflow is the heart of the operation. In essence, we can’t have one without the other. They simultaneously work together and are needed to survive.
Many organisations who sell to other businesses regularly give their clients credit on account. As a result, these customers have the luxury of ordering products or services and essentially paying later.
Thankfully, many customers pay their invoices on time. There are several others who need a gentle reminder.
Unfortunately, there are people who are slower to pay. Some will purposely take their time. On the other hand, there can be companies who encounter difficulties with cashflow and will need to be managed separately.
It made me wonder about the various types of payers and how we can manage them successfully. Essentially, we can look at our customers under five categories.
- Those who can pay and do – these are the customers we all love. They need little encouragement by the credit control team to pay up. Yet, I believe it’s always good to show our appreciation for their efforts, by acknowledging and thanking them for their prompt payments.
- Those who could pay but won’t – this situation can be more difficult. These customers may have valid reasons for not paying. Often, it’s due to discrepancies with the invoice; such as incorrect deliveries, missing purchase order numbers or because an inferior quality product or service was provided. Therefore, rather than getting frustrated or putting their account on hold, the key is to sit down with the customer and work through the details in order to agree a solution.
- Those who would like to pay but can’t – there are times when anyone can fall on hard times. They may previously have been great payers, but are now experiencing genuine cashflow problems. As a result, it’s important to work with them through the tough period. Take time to talk to them, identify their current position and work out a fair and reasonable payment plan.
- Those who can pay some, but can’t pay all – similar to the above group, these are people we really need to work with as they undergo a financial strain. The key for us is to remember the long-term plan. Negotiate payments, set up a payment scheme, continuously monitor the situation and work with the customer as much as you can. This can create long-term loyalty.
- Those who don’t pay, can’t pay and never intended to pay! – this final group of customers are the ones no company ever wants to deal with. Thankfully, they are few and far between. The good news is that we can put practices into place to avoid encountering them. Examples of various safety nets include:
- Ask the customer to pay upfront for all orders.
- Payment is made for the first number of orders. This allows the customer to build a reputation and track record (only try this out if they can prove they have changed).
- Set customers up on direct debit / standing order payment plans
- Request deposits upfront and payment upon delivery
- Request all customers complete a credit application form, and provide references
- Finally, carry out a credit check with a professional credit bureau
Finally, in the words of Gary Bettman (former NHL Commissioner) “It takes two to make a deal, two to negotiate, and two to make it bad”. Keep your eye on the prize and make sure to chase payments. Yet, be prepared to work with your customers in times of trouble – as they are the life-blood of your business.