Late payment is often treated as a collections problem but really, it’s usually an order-to-cash issue. Invoices become overdue for many reasons, maybe there are unclear payment terms, errors in purchase-order, disputed charges, slow approvals or invoices that have reached the wrong person. This is why it’s always essential to ask first because while chasing can recover money it can also lead to long-term negative effects on customer relationships.
For B2B finance teams, the objective is to remove friction that can be avoided and respond firmly to genuine payment risks.
Here are five of the most effective actions:
1. Set expectations before the sale is completed
Payment behaviour is influenced way before an invoice becomes due. Sales teams have to understand that extended terms are a commercial concession and not an automatic entitlement. For example, credit limits, payment terms, billing requirements and dispute processes should be agreed during onboarding – never after delivery.
Where possible, confirm the customer’s legal entity, billing address, purchase-order requirements and accounts payable contact before ever accepting the first order. With these details in place and with clear, upfront expectations, you will reduce misunderstandings and difficult conversations will become so much easier.
2. Contact customers before the due date
The first collections contact shouldn’t wait until an invoice is overdue. A short pre-due reminder can confirm that the invoice has been received, approved and scheduled for payment. For larger and high-risk invoices, it can also uncover disputes before they delay cash flow.
The tone should be helpful rather than confrontational – “Can you please confirm the invoice is correct and if there is any supporting documentation missing. If not, are you happy to schedule the payment?”
Pre-due engagement is all about issue prevention, it gives your customers the opportunity to raise any problems before the account escalates.
3. Eliminate invoice errors and delivery failures
Sending invoices to employees that no longer work there, missing purchase-order numbers, incorrect prices and duplicate invoices are preventable causes of late payments.
Put tracking into place, you want to be looking at:
- first-time-right invoicing
- billing rejection rates
- the time between fulfilment and invoice delivery
The fastest invoices to collect are those the customer can approve immediately.
4. Segment customers by behaviour as well as value
Not all late-paying customers present the same risk.
For example, there are various types of behaviour segments such as:
- forgetful payers
- chronic delayers
- unresponsive
- disputed payers
As for value, examples include:
- high value
- medium value
- low value
When you’re aware of customer behaviour, you can somewhat predict what’s to come. So, a predictable five-day delay shouldn’t be treated the same as a customer whose payment performance is declining.
Segment customers using:
- payment history
- dispute frequency
- broken promises
- exposure
- recent behavioural changes
Low-risk customers typically only need an automated reminder but your high-risk clients may require early and personal contact to revise credit limits.
5. Make payment processes easy and stick to the consequences
Give your customers simple ways to resolve easy queries quickly. Self-service portals, electronic invoicing and accessible account information can remove extra admin for you and make their experience frictionless.
While convenience is great, it still needs support from your credit control team and repeated late payments have to lead to defined consequences, such as:
- reduced credit limits
- shorter terms
- order holds
- deposits
Expectations should be approved clearly and on paper, it’s not acceptable to negotiate them informally with the sales team.
Being firm won’t damage retention when it’s fair, supported by evidence and agreed upon by the customer but what can affect retention is inconsistent treatment.
More about Baker Ing
Better collections begin way before collections. Reducing late payment doesn’t mean choosing between cash flow and customer retention. The strongest order-to-cash teams improve by preventing billing friction, identifying risks early and matching their response to customer behaviour.
To speak to an expert, contact Baker Ing today.