We all know cash flow is important. The bigger the cash balance in your business the safer it is, the more flexibility it has and the less it has to rely on external lenders and investors. So getting cash in from customers as fast as possible is one of the clearest priorities in business.

But sometimes late payment is a problem. And sometimes it feels like it’s not just the odd invoice, but a more widespread problem relating to particular customers or particular types of invoices.

If the level of aged debt becomes a concern to you, it’s worth analysing the reasons. You may find that there are some easy things you can do to improve the situation. In this article, I want to suggest a few areas to consider.

Are Your Invoices Easy to Process?

One of the things you can do is to put yourself in the position of your customers’ Accounts Payable teams and think about how easy your invoices are to handle. This should be straightforward enough. You have an Accounts Payable function yourself, right? What are the kinds of things that make invoices difficult to process for them?

Here are a few starting thoughts, things that I’ve seen hold things up, to get you going:

  • Are you invoicing the correct legal entity?
  • Is it clear who you are (especially if your company has other trading names)?
  • Is it easy to see how the invoices add up?
  • Do the descriptions on your invoice match what the customer would be expecting to see? Or do you use abbreviations or product codes that the customer wouldn’t have used when ordering?
  • Does your invoice mention the correct person/dept at the customer?
  • Are your invoices of a readable quality?

With the last point, bear in mind that a lot of Accounts Payable teams are increasingly moving to scanning and Optical Character Recognition. Here are a few tips for getting through that process more smoothly:

  • If you send paper invoices, black ink on a white background is much easier to scan successfully.
  • Print using a clear font, that clearly distinguishes 0 from O, 1 from I, and 5 from S, for example. Fancy fonts usually don’t scan well.
  • If sending invoices electronically, PDF documents are usually the standard. However, these must normally be high quality (more than 300dpi) and must not be sent with “embedded fonts”. This is because behind the scenes the electronic capture process may have to convert the pdf into a high-quality image format (such as TIFF).

If you think your invoice format may be causing late payment, why not ask your customer’s Accounts Payable team how they can be improved?

Do You Understand Your Customers?

Following on from that, whilst your invoices themselves may look ok, sometimes following the wrong process will hold things up.

I have certainly seen one major example of this. Certain parts of a business I worked with were plagued with late customer payments for big project jobs. Why was it always the big invoices that got stuck, we used to ask ourselves.

And what we discovered was that with certain big corporate customers, they have procurement functions that require certain procedures. For instance, they are not allowed to commit to expenditure without having a properly approved purchase order (PO) in their system. And invoices don’t get paid unless they quote a valid PO reference. In many cases, our customers were the marketing and PR departments who just phoned our consultants, and started a project without getting a PO generated. When we came to invoice for the work, we then couldn’t get paid until those people had negotiated (and apologised to!) their procurement colleagues. And getting all that sorted after the work was done always seemed to take ten times longer than if they’d followed the correct procedure in the first place.

The problem is that all customers are different, and businesses in different industries seem to have different standard practices.

But as a general principle, it’s worthwhile taking time when you start a new customer relationship, finding out about and understanding the process of how your invoices will get paid. And actually asking your customer whether they have a procurement team and policy/procedure can get you half way there.

Procurement is Not Always Your Enemy

Many suppliers are afraid of dealing with procurement teams. There is a good reason for this, in that they are usually very good at negotiating deals. It immediately tells you that this company doesn’t just accept any old prices, and doesn’t just deal with any supplier. You’re probably going to be well vetted and pressed hard on price!

However, the flip side is that once you have got through that process, you will probably have a very powerful ally within your customer. If you do a good job at a reasonable price, and you’ve passed all their probing, they’re actually likely to give you preference next time anyone in their business needs what you’re selling.

And they’ll set things up to make sure you get paid as per the terms you’ve agreed.

Procurement isn’t the only procedure that can delay your invoices. The main lesson is to make sure you understand how your invoices are going to be processed, so that you can make sure you send them to the right people, in the right format, at the right time, etc.

Are You Too Soft?

Finally, it’s worth thinking about whether your historic credit control procedures have given your customers too much slack. Have you gotten yourself a name for being soft?

is your credit control process too soft?Do your customers really care when they pay you late? How often do you call them when things go overdue? Do you escalate matters within your company and theirs? Are you consistent with this? Or do you sometimes chase after a couple of weeks, and sometimes after a month or so?

Do you quite often let your customers get away with late payment, either because you haven’t established credit control procedures, or because you’re too busy to apply them?

Consistency is key when it comes to credit control. Your customers can’t complain of harsh treatment if they know that as soon as an invoice is seven days overdue they will get a phone call.

And, as I noted in my article on my learnings about cashflow from nearly going out of business, it is possible to get to a point where you have very little overdue. It takes hard work, consistency and commitment. But once your customers know the line you take, and you always stick to it fairly, then if they value your provision for their business they will start to toe the line better.

Summing Up

Don’t sell your business short on this. Cash is critically important. And if you let your processes or your laziness result in consistent late payment from customers, you are letting your business down.

Above are just a few ideas about how to tackle late payment. The main thing, as with any problem, is to do some analysis. Find out what the reasons are. And consider what you might be able to do, what’s within your control, to help improve things.

Let me know any stories you have about late payment. What common problems have you found? How did you go about getting aged debt under control? Tell me in the comments below!


Ken Green · January 11, 2018 at 11:15 pm

Common pitfalls that are often overlooked, thanks for sharing. I too, have been involved with late payers and created a solution to help businesses avoid write-offs and collections. Would love to get your feedback. Thanks, Ken.

    Andy Burrows · January 16, 2018 at 5:49 am

    Sure. Connect with me on LinkedIn or Twitter and send me a PM.

Factor Loads Factoring · August 26, 2018 at 11:59 pm

Yes, I totally agree with what you said. I think that when you are running a business, you should know how to do the proper invoicing. Laziness has no place or else the business will fail. I also think that you should not be so soft to your clients in order to get the payment from them easily. Thanks for sharing this article.

Leave a Reply

Your email address will not be published. Required fields are marked *