Breaking Down the Reasons Your Customers Aren’t Paying You
Every company has customers who occasionally or routinely pay their invoices late. Other customers pay on time for years until suddenly, they don’t. When a customer’s invoice runs 30, 60, 90 or more days late, the immediate question for accounts receivable is how to get the customer to pay that bill. But there’s another significant question to ask: Why isn’t the customer paying you on time and as agreed? The AR team isn’t the only department that needs to know the answer. In order to get outstanding invoices paid as soon as possible and to salvage worthwhile customer relationships, other departments need to be aware of the situation, too. This includes sales, CX, fulfillment, and others.
Why Aren't Customers Paying On-Time?
On a recent Tesorio webinar about Connected Finance, Jeff Epstein, the former CFO at Oracle, explained that the reason a customer pays you late or not at all isn’t always as simple as a lack of cash. There’s often more to it, which can help determine the best way to deal with a customer. This additional context also often indicates a need to adjust some internal processes that are inadvertently impacting collections in a negative way. For example:
- A sale to a company unable to pay: A financially unstable prospect might have been targeted by a marketing campaign or a sales rep in order to boost sales, indicating a need to tighten up the pre-sale process for determining creditworthiness.
- A previously solvent customer now in financial trouble: At the time a customer comes on board, they may be fully capable of paying their bills. But anything from a bad economy to a reputational hit, a change in market preferences, or an unprecedented pandemic can alter their creditworthiness. Making sure that routine customer check-ins are a part of the relationship management process can help spot a red flag before a customer gets in over their head.
- A slow-paying business model: Customers are trying to manage and forecast their cash flow, too. As a result, some make the strategic choice to pay late, in which case you might want to adjust their terms or offer them a bigger discount for paying early.
- An unorganized customer: Sometimes late payments are just a consequence of a customer’s inattention to detail, in which case they may need more email or phone call payment reminders.
- An incorrect invoice: Customers typically don’t want to pay if their invoice is wrong. If that’s a recurring issue, there’s a glitch in your invoicing process that needs to be fixed.
- An unsatisfied customer: Product problems or defects can zap customers’ motivation to pay. If this is a frequent reason for late or forsaken payments, you likely need to review your manufacturing, packing, or shipping processes.
- Departing customer: If not renewing their contract, customers might stop paying. So, it pays to make sure your collections team gets a heads up about uncertain contract renewals.
Accuracy and Connectivity Improves Collections
Digital finance tools like Tesorio’s AR Essentials can improve the accuracy of your invoices, automate your invoicing and dunning processes, and increase important AR data visibility across your company. Get your Tesorio demo today.