Are your customers paying their bills more slowly these days? I'm starting to hear rumors of problems. The delays don't seem to be severe yet, but any slowing of collections could hurt your cash flow.
There is always the possibility, of course, that an insolvent customer won't pay you at all. But this doesn't appear to be a major problem today, and it's one that traditional credit and collection procedures have been designed to minimize. No, today's problems seem to stem from delay, not insolvency.
Companies have many reasons for delaying payment. In fact, they can generate more excuses for not paying their bills than children can for not eating their spinach. And unfortunately, these excuses can be very effective in delaying collections, because it's often difficult to know whether an excuse is real or imaginary.
One way to deal with these excuses is to declare them irrelevant: "I don't care if your entire accounts-payable department is out with the flu! We have problems, too. But we manage our problems, and we expect you to manage yours. We worked hard to ship you a high-quality product at a good price on time. But we expect to be paid for the product. And we expect to be paid now!"
This approach makes me feel good -- much like clearing my sinuses does. Unfortunately, it isn't always effective. The excuse, whether real or not, often is sufficiently established in the customer's mind to postpone payment no matter how much I rant and rave. Therefore, I too, must take the excuse seriously. While doing so may not speed invoices that are currently overdue, it generally speeds collection of future invoices.
The following excuses are ones I've often heard while trying to collect receivables from business customers. Some are real problems that require real solutions. Others are outright lies. But each excuse presents you with an opportunity to solve a problem that interferes with your being paid on time:
"Your product doesn't work."
When I was the chief financial officer for a small manufacturer of numerical controls, I learned more about the quality of our product than did anyone else in the firm. If a product didn't perform as advertised, if it arrived DOA (dead on arrival), or even if it was difficult to install, I learned about it when I called to ask why the invoice wasn't being paid.
I've found that shipping a high-quality product speeds collections in two ways. At the minimum, it nearly eliminates poor quality as an excuse for postponing payment. Better yet, customers will tend to take better care of you if you're a vendor upon whem they can depend.
"We can't until your paperwork is correct."
More typical of a large company than a small one, this excuse automatically postpones payment for at least a week. It arises when an adjustment must be made to the invoice because of a pricing error, damage in transit, a short shipment, whatever. Many companies will be happy to solve the problem over the phone. Others will insist on receiving a credit memo, corrected invoice, or other document before they'll schedule your invoice for payment.
Some companies use a passive variation of this excuse. If there's some question about your shipment or invoice, no matter how minor, these companies set the invoice aside in a "problems file." If you send threatening letters, they file the letters with the original invoice. If you call, they say, "I was hoping you'd call. I need to have this question answered before we can pay. . . ."
Of course, if your paperwork is accurate, understandable, and readable, it tends to reduce the questions and delays that can postpone payment.
"We don't have the paperwork yet."
This excuse caused me serious problems several years ago when I worked for a small distributor. After we received a big order from a large chain of department stores, I sent our invoices to the receiving addresses, as the central office had specified. I soon learned that people at the receiving addresses approved the invoices when they had the time, then sent them to the central office for payment. When the paying office eventually received the invoice, it would schedule payment for 30 days from that date. To speed up collections, I had my secretary call the bookkeepers at each receiving address on a regular schedule to help them approve and forward our invoices quickly.
I called another company about an overdue invoice, and the accounts payable supervisor told me that her receiving department had no record of our shipment, and that she'd never heard of the person who'd signed our waybill. In desperation, I called the receiving dock and pleaded with the man who answered the phone to help me find the shipment. After 10 minutes of discussion and research, he found it in the back corner of the warehouse. Since our shipment had arrived when they were very busy, he said, someone had set it out of the way, then forgotten about it. The waybill had been signed by someone from the shipping dock; no one knew why. Not yet satisfied, I called the person who had ordered our product and the accounts payable supervisor. Both were pleased that I'd solved their problem, and both agreed to send payment immediately.
It's easy at times to let a theoretical principle interfere with speedy collections. It shouldn't have been necessary, for example, for me to shepherd paperwork through the department store's maze, or to track down lost shipments in my customer's warehouse. Maybe it shouldn't have been necessary, but it was if I expected to be paid sooner rather than later.
"You didn't send enough copies of the invoice."
Some people make this excuse sound like an accusation. They have better things to do, they say, than to stand at the copy machine all day, making copies of your invoices. Even so, I've often been told that is just what the clerk was intending to do when I called. Sure he was.
Whenever I run into this problem with a new customer, I make a note of the exact quantity of invoices they need. In order to get paid on time, I'd be happy to send my customer a dozen copies of an invoice.
"You just missed our last computer run; we'll pay again in two weeks."
Few companies, whether large or small, pay their vendors daily. Most write checks either weekly or every other week, and it's nearly impossible to get paid at any other time. But once you know each customer's payment schedule, you can speed collections by working within their system. When a large payment is due, I often call customers several days before the deadline for a scheduled computer run to make sure that all the paperwork is in place. If there's a problem, I have a good chance of fixing it in time to get paid on time.
Occasionally, in fact, it will pay to send invoices by an overnight delivery service. For example, suppose you will be paid two weeks sooner if your customer receives your $5,000 invoice the next day. If your bank charges you 12% interest, that half-month delay will cost you about $25, while most overnight delivery services will run you less than $15.
"We lost your invoice."
Along with "I'm from the government; I'm here to help you," this is one of the great lies of all time. I maintain binders containing forms on which I record all collection calls. If a customer claims to have lost my invoice, I quickly review my notes of past conversations with him. If I see that he regularly loses invoices, I'll explain why his excuses have begun to strain my credulity.
"Our computer's down."
This is another great lie. Unfortuately, it is true so often that you seldom can attack it head on. But keep in mind that every company, whatever its size, has the ability to issue handwritten checks. The accounts payable clerk who offers this excuse may not have the authority to write a check, but someone higher up certainly does. One friend of mine, a former Marine, climbed this chain of command until the excuse became an obvious lie. He then called the company's president, beginning the conversation with, "You've got a bunch of goddamned liars working for you!" He got his money.
"Cash is tight this time of the year."
One way to respond to this problem is to ask your customer for details. You may learn of problems that will affect other companies as well. Also examine your customer's payment history on previous anniversaries of the current date. If collections were slow but acceptable then, they'll probably be slow but acceptable now -- provided the company's finances are basically sound. Under such circumstances, I try to get the company to pay me a partial amount, then commit to a payment date I can live with. But if the problem appears to reflect a downward trend instead of a seasonal one, it's time to time more serious collection efforts.
If I'm not mistaken, you're going to hear more and more excuses over the next several months. This is probably a good time to start making a list of the ones you hear most often so you, too, can plan what actions you should take to overcome them and thus speed up your collections.