Lynne Darcey Quigley, CEO, and founder of credit management platform Know-it, lists the top red flags to spot when potentially faced with suppliers who won’t pay invoice deadlines.
Wouldn’t it be fantastic if you could predict which customers or suppliers are likely to pay late, if at all?
Yet you can bypass any issues and spot behaviour patterns by developing the skill to identify these activities frequent in late payers and thus negotiate the risks. If you spot these early, you can take the necessary precautions to minimise any damage.
Each of these warning signs is hugely frustrating, but when faced with excuses for non-payment, it can feel like you are fighting a brick wall. The following examples are some of the more frequent ‘reasons’ often heard by SMEs faced with a serial debtor looking for more time to pay or not wishing to pay full stop.
There are occasions when some of the above are genuine reasons. Directors may be out of the office. Accountants may be unavailable, and bank accounts could be in the process of being changed. Yet, sadly, where there are legitimate and unavoidable situations, there will be the odd white lie from a client either not wanting or unable to pay. When you suspect that all isn’t truthful, you have to act and focus on recovering what you are owed without losing the relationship.
It is not easy to face a customer who wants to argue, but if you can maintain a calm and controlled manner, you are more likely to see a more positive outcome. For example, when the credit terms are being questioned, it is best to carefully point out that the terms in your invoice match the terms in your original agreement.
Many SMEs will more likely let an invoice go for the sake of keeping an agreement with a supplier or customer so that they can keep the business. When embarking on a new deal with a customer or a supplier, be mindful of the date they agree invoices would be settled each month, then you have the information you can refer to when the date has gone, and the invoice remains outstanding. Refer constantly to your terms on the agreement and if they have had trouble paying, talk this through with them. You will stand a better chance of maintaining your relationship with them and thus keep the contract intact.
It should always be your focus to recoup the monies owed to your business. Firms, mainly smaller and micro-businesses, cannot survive if there is no cash flow running through; hence the word ‘flow.’ Cash is the lifeblood of your company, and without it, the future will look bleak. So, when you are faced with what your gut tells you are excuses, be firm, and where needed, enlist the help of a debt recovery firm that can do all the heavy lifting for you, which will save you time and headaches.
The rule of thumb for unanswered emails should be three. After which, the alarm bells will ring, and it is time to act. First off, call them directly. It might be easy to ignore an email but usually difficult to ignore a phone call. Then, if you get through to your customer, politely remind them the invoice is overdue and ask when you expect payment from them. It is critical to apply steady pressure on any outstanding invoice. Money that isn’t in your cash flow system in your own business will begin to hurt all the time it’s absent.
Credit checking and monitoring are critical if your business is to thrive, and this needs to be implemented from the word go with every new customer or supplier. You must keep a straightforward and effective credit control process in your business, no matter how much or how little in your cash flow at any given time. By having this in place, you can be clear on your customer’s payment behaviour, and you will be able to see warning signs long before there is an issue. A sound system will enable you to monitor and access information vital to keeping your customer base clean and healthy. A credit report will include red flags like a Country Court Judgement (CCJ) and, where possible, allow you to access company financials. Hence, you are aware of precisely who you are doing business with.
It can be crippling when a customer claims that goods or services haven’t been completed or even whether they have been received at all when you know they have. It feels that there isn’t a leg for you to stand on, primarily when they dispute the agreement, they have with you.
Another typical example is when a customer disputes the terms of their agreement with you. This is often an easy issue to rectify if you initially stated clear credit terms in your agreement. Remember, every time you accept an order from a customer or issue an invoice, your client will have already agreed to your terms of credit. The simple way to address a customer who appears to be changing or disputing the terms is to point out that they had already agreed on accepting either goods and services or invoices.
Where repeat custom and ongoing agreements are concerned, it is helpful to note against your records changes in payment and buying behaviour. For example, they might change the date they pay you on more than one occasion, or they may be buying less from you – the latter, more often than not, will tell you a lot about their own cash flow concerns. If you see something is off, for instance, a customer who regularly pays on time is now making excuses or placing orders much smaller than usual. It would be best to consider offering payment terms that mitigate some credit risk.