10 Strategies for Improving Customer Payments
Left to their own devices, customers will often pay on their own terms if allowed to do so. It’s about convenience within their payment cycle. Therefore, it’s up to you to enforce your payment terms.
It’s a little easier with new customers. Strict terms established at the very beginning, before any bad late paying habits are formed, are easier to establish. Take the time you need to clearly outline your terms with your customer point-by-point before they receive their first invoice from you. Give them an opportunity to ask questions and clarify.
Once their first order is shipped, follow up. Make sure they received their goods or services as expected. Ask if they received the invoice and if everything is correct. If they miss their first payment due date, call them immediately. Your sales team can help to reinforce your terms, too. When everyone is on the same page, cash flows more smoothly.
Existing customers can pose a bigger challenge. If payment patterns have become a bit of a free-for-all, you’ll want to employ the following strategies to get things back in line. None of these can be done all at one time. Take on each one with attention to detail.
1. Perform Segmentation Analysis
Break receivables into segments: Size, distribution channel, industry, volume, terms, etc. From there you can spot slow payers within the segment from the prompt payers. What differentiates one group from another? How many late payers do you have and what’s their impact on your business?
Compare large business to the small ones. Take a look at each segment to evaluate how they pay on average. Which ones are below average? Stand one segment against another to evaluate commonalities. This may unveil a surprisingly high number of late pays and maybe even the reasons why they routinely pay late.
2. Educate Your Staff and Customers: Credit Policy 101
Teach your sales team well so they will educate your customers with accurate information. Anyone involved in customer relations needs to have a thorough and complete understanding of your policies.
3. Scrutinize Vendor Compliance Terms
Many customers now insist upon adherence to a vendor compliance manual. Vendor compliance terms must be reviewed in detail, and with a fine toothcomb. Leave no stone unturned lest you end up saddled with unnecessary deductions and compliance claims. Any stipulations you cannot or will not agree to can then be negotiated with your customer. The final terms agreed upon by both parties need to be included in your processes from order taking to delivery and every step in between.
4. Create a Collection Process
In the cases where a company deals with varying industries and customer types, there can be many variables that drive payment behavior. This is all the more reason to have a process in place for collections.
The industry type, size, risk and even payment history may require individual care in order to recover more money within an optimal time frame.
A level of consistency with each customer can go a long way in establishing your payment expectations. This is why we encourage using a timeline for collections. When your collection efforts are consistent, it communicates that you take your terms seriously and you expect your customer to do the same.
5. Strategically Assign Collectors
Assigning collectors by alphabet or geography is fast, but certainly not effective.
Divide your talent by skill and experience. You may find some people better at soft collections. They skillfully help to resolve administrative problems, make quick phones calls and help build rapport. Others collectors negotiate masterfully and seem to be able to work out solutions even with older accounts… the ones no one else wants to touch.
6. Focus On Problem Solving
Have you ever purchased something you didn’t really need or want because the sales person won you over? Most of us have at one time or another. It’s a skill of building rapport, making a connection.
HOW a collector communicates is every bit as important as WHAT he or she communicates.
When a collector focuses on solving a problem as opposed to just getting the money, the customer is more likely to cooperate. While the collector doesn’t accept excuses, he or she does encourage uncovering the underlying problem so a resolution can be found.
7. Utilize Technologies
Keeping your collection cases organized is easier now than ever with software that helps you keep track of every detail. C2C’s Profit Maximizer is our free web-based accounts receivable management system that helps businesses by streamlining their collection process. It offers a direct link to QuickBooks, collection letter templates, call scripts, reporting and much more.
8. Partner With A Third-Party Collection Team
Turning to a commercial collection agency can save significant time in-house. While you and your staff are busy operating the business, working with customers and making sales, your collection team is working your accounts simultaneously.
It can be tempting to choose a collection agency that offers the lowest rate but keep in mind: collection services are not a commodity.
9. Create Killer Invoices
Make sure your invoices include all the necessary elements in a way that can be easily scanned by your customer. Check them for accuracy before they’re sent. Errors within invoices slow payments significantly.