Stuff happens. Product deliveries get delayed, companies move, employees retire, invoices have errors, and so on. Many times, this is the ‘stuff’ that results in past-due accounts receivable.
We queried our collections system for the most frequently occurring reasons for nonpayment over a 24-month period, and we found that our clients could have prevented a great number of these issues by putting some proactive, consistent measures in place.
Top 10 Reasons Your Customers Delay Payments
1. The Invoice Was Lost or Never Received
Our collection representatives heard this excuse from our clients’ customers more than 26,000 times in two years. Whoa! So, what can you do to prevent this from happening with your customers?
One of the easiest ways to ensure your invoices make it to the correct party is to check your records on a regular basis, including your ERP and/or CRM databases, credit applications, and purchase orders. Work with your sales and billing teams to ensure a process is in place to review and update these files at least once a year, ideally every six months.
2. Your Customer Claims They Already Paid
This claim is nearly as common as the one above. Our collection reps heard our clients’ customers tell them they had already paid a presumed past-due invoice more than 23,000 times in 24 months. In some cases, it was indeed a case of the check and payment demand crossing in the mail, but more often than not, the issue was related to our clients’ cash application processes.
Just as it’s essential to check your records to make sure invoices are sent to the proper contact, it’s also necessary to review how you are applying payments, internally. Procedures should be in place to periodically review your company’s cash application process to ensure nothing is broken, as well as to update and manage un-applied payments in your system regularly.
3. AP Needs Additional Documentation Before They’ll Pay
Documentation occur a lot (over 16,000 times in two years). It’s no surprise that the person paying the invoice is often not the person who placed the order with your company. Accounts payable departments generally have procedures where a certain amount of backup documentation is required before they’ll pay an invoice.
Examples of these documents can include a copy of the sales contract or PO, proof of order, or delivery confirmation.
4. AP Needs Information About the Product or Service
In our collections system (ABC-Collect), this reason code is a bit of a ‘catch all’. Essentially, what it means, is that your customer’s accounts payable folks have questions they need clarified before they’ll pay the bill. These questions might be related to the specific product or service or about invoice coding that they’re not familiar with. Anything that is unclear to the person responsible for paying the invoice could result in a ‘more info needed’ delay.
Work with your billing team to ensure anyone with an appropriate level of background information can make sense of your company invoices. Test this out by having someone outside of credit, collections, sales, billing, or AP look over one of your invoices to see if they understand it. Take their feedback into consideration to determine if any changes are necessary.
5. Your Customer Has a Dispute that Needs to be Resolved
Invoice disputes come in many varieties, but they’re usually attributed to one of three things:
1) The product or service itself
2) The price charged
3) The payment terms
This could be related to a terms discrepancy, an issue with the product quality or service delivery, or an incorrect rate or invoice charge.
It can be challenging to see these issues coming – especially if the billing department is not aware of special pricing offers or exceptions that may have been put into effect by someone on the sales or service team. Regular communication between your credit, sales, service, and billing teams is key to preventing these types of disputes.
6. The Customer Can’t (or Won’t) Pay, Makes a Settlement Offer or Requests a Payment Plan
We get it. Sometimes, the customer just doesn’t want to pay. Other times, they can’t. For whatever reason, company funds may be tied up, or irregular constraints have been put on the AP department. In our 93 years in business at ABC-Amega, we’ve heard all the excuses!
Unfortunately, we often find these delays to be nothing more than stalling tactics to extend terms. There’s not much you can do to prevent or predict this from happening – that is, unless specific customers have a habit of employing such schemes. You’ll want to have regular service calls with these customers to ensure their expectations are being met. These meetings should help prevent the ‘won’t pay’ and settlement offer occurrences.
To avert customers’ temptation to pay late or request payment plans, offer a discount for pre-payment – or a surcharge for late payment and payment plans.
7. There Was an Electronic Billing Issue
When we hear this excuse, the customer often tells us that they couldn’t submit payment through the vendor’s payment portal as they were supposed to. Specific issues related to this include expired log-in credentials (without an easy way for them to reset), unanswered support tickets, updated banking information, or a general issue with the vendor’s EDI software.
To prevent these types of billing issues, make sure you have a process in place for customers to self-serve and reset their credentials in your payment portal. To take it a step further, ensure that portal log-in access is discussed when you review the company’s credit application, purchase orders, ERP and CRM contact information. We suggest doing this no less than once per year or, ideally, once every six months. You should also schedule regular (i.e. quarterly) testing of your EDI system.
8. Your Customer Requested a Billing Adjustment or Reversal
There could be a several reasons why customers would request a change to an invoice. The most common reasons we hear are that there was an error with the price charged (i.e. wrong per item cost or incorrect total cost), an issue with the quality of the order, or a portion of the order was damaged or returned and requires reimbursement.
9. The Wrong Customer Was Billed
Your customer says they never received your invoice. They’re likely telling the truth in many cases, because you missed updating necessary contact records. We come across this issue most often when companies move their office location. Given the state of the work right now, it’s safe to assume the rate of this occurring will continue to increase. Many companies have moved to work-from-home or hybrid models. Others have closed or merged office locations, so paying attention to your customers’ email signatures and other outbound communication is important to ensure you don’t miss timely mailing information updates.
At ABC-Amega, we often see this issue occur with clients who have multiple customers in a single office building (e.g. telecom and energy providers). So the bill will be sent to the correct service address, but the tenant they billed is no longer occupying the suite they mailed the invoice to.
10. The Service or Product They Received Was Unsatisfactory
Finally, the tenth most frequently occurring dispute we encounter is directly related to a product or service issue.
In credit, you don’t have any control over the quality of the products or services your company sells, but you can control the frequency of your communication with your sales and service team. Therefore, it’s best to work with these departments and put measures in place to ensure that invoices are adjusted accordingly when a complaint is verified.
There are at least a dozen more reasons that we’ve recorded to understand why customers dispute or delay payment. Some of these include missing or invalid purchase orders, company name/address changes are needed on the document before they’ll pay (a stalling tactic for some, a company policy for others), the wrong tax rate was charged, or the company recently filed for bankruptcy.
As a vendor, some of these delays could be controlled or prevented by putting a few proactive measures in place. However, we realize that customers and processes are rarely perfect, and a percentage of your accounts receivable will always be past due. As a collections agency and service provider, we can customize our collections system with your company’s unique dispute reasons. We’ll track and report on this data to help you identify the root cause of payment delays, ultimately helping you prevent this ‘stuff’ from happening in the future.
Check out these other commercial collection tips and articles on our website:
- 13 Strategies to Speed up Collections
- 9 Steps to Help Your OCA Help You
- Collecting By Phone: The Three Step Process
- Collection Litigation: Court Costs and Suit Fees
- Evaluating Your OCA’s Performance
- Nine Collection Tips for Small Business
- Nine Guidelines for Selecting the Right Collection Agency
- Payment Plan Negotiations
- Regulating Commercial Debt Collection
- Six Tips for Making Collection Calls that Get Results
- The ABCs of Telephone Collections
- Using an OCA to Execute Debtor Judgments
- Working with an OCA
For more information on how our commercial collection agency can help your business contact us at 844.937.3268 today!