The Key to a good Customer Payments Process

Like to get customers to pay quicker?

Some of the key elements of a good Customer Payments Process

Management

Once you understand the impact of poor collections on cash flow, it’s easy to see why it needs to be proactively managed, rather than handled on an ‘ad hoc’ basis.  It really is worthwhile to have a good system in place for managing customer payments.

Reporting

It’s very hard to chase people for payment if you have no idea who owes what.  Your accounting system will print out a report, showing who owes how much and for how long.  Most good accounting systems have this function and it’s not difficult to get it working properly with the right operator or good advice.

Responsibility and Procedures

If you want a job done right, it needs to be on someone’s job description and they need procedures to work within.  Often collection gets handed to the business owner or bookkeeper and neither one has the time or enjoys the task.

If this is the case it’s better to find someone else to do it.  A receptionist or someone who enjoys being on the phone is often a good person to do it.  They just need good procedures and supervision to guide them through.

Invoicing

The quicker you can invoice a customer the quicker you get paid.  I’m amazed when business owners say they wait until the end of the month to do invoices.  Why would you give people up to an EXTRA 30 days to pay you?  

It’s also important what the invoice contains.  The ‘Terms of Payment’ or ‘Terms of Business’ is an important inclusion, but what’s even more useful is to state the actual due date, to avoid confusion or customers making up their own interpretation.  

Make sure the email invoice is directed to the person with authority to pay. This can save heaps of time waiting for it to arrive on the right computer.

Deposits and Progress Payments

Depending on the type of business you are in, it might be quite reasonable to ask customers for an up-front deposit.  This goes a long way to helping to cover costs associated with a job or production.  If a job is going to be in progress for a while agreeing on ‘Progress Payments’ is another great way to help your cash flow and cover costs, rather than waiting to the end of the job to ask for payment.

‘Terms of Trade’ or ‘Terms of Business’

A clear understanding up-front by the ‘Buyer’ and the ‘Seller’ goes a long way to avoiding any confusion down the track.  

Very few businesses actually have clearly stated ‘Terms of Trade’.  They aren’t hard to find over the internet and some lawyers have standard templates you can use.  If your business is a little complicated it may be well worthwhile to pay a little extra and have tailored ‘Terms of Trade’ produced.  

The best time to broach this subject with a customer is during the ‘Sales Process’.  It can easily be given as part of a pack and highlighted by the salesperson to avoid confusion and delayed payment.

Credit Checks

The title of the article says it all!  Customers who can’t or won’t pay you are not worth having.  You need to be confident that your customer can and will pay you.  You can run your own checks via a credit agency and ask them to complete a credit application form.  It’s best to know up front if you really shouldn’t be dealing with a potential bad payer.

Personal Property Securities Register (PPSR)

When selling goods on retention of title or consignment, making a registration shows searchers that you are claiming an interest in the goods or assets you are selling on retention of title terms, or have consigned to someone else to sell on your behalf. This interest means the goods or assets secure the debt or obligation that someone owes you. The registration protects your interest in the goods or assets should the customer default or go broke.

If you don’t make a registration on those goods or assets and your customer goes broke before they have fully paid you, your stuff may be sold to pay secured creditors first. If you are not registered, you will be an unsecured creditor in an insolvency and may not recover much, if anything, of what you are owed.

If you register as early as possible, you stand the best chance of being first in line over other creditors. It also helps you to protect your interest even if the goods or assets are sold on, mixed or installed onto other goods.  For more detailed information on PPSR visit https://www.ppsr.gov.au/

Payment Methods

Providing as many ways for customers to pay as possible makes it easier to collect.  Some customers resent paying credit card merchant fees, but it’s better they pay you now and assume the credit debt with their card provider, than you waiting until they have the cash at hand to pay. Discounting the merchant fees may cost you much less than waiting 120 days for a bank transfer.

Statements, Reminders and Debtor Days

If there is a big pile of invoices to pay and you are the one who sends reminders, it’s highly likely you will be put at the top of the list for payment.  If you just sit quietly and wait you can bet some customers will take advantage.  

It’s not difficult to shoot off a batch of emailed statements or a reminder letter to those who haven’t paid.  There are some really terrific systems around that can handle the whole reminder process, taking over from your day to day bookkeeping system.  One business reduced their  debtor days (average days it takes customers to pay us) from 45 to 27 using one of these! It was worth tens of thousands of dollars to them.

Follow Ups

Just like statements and reminders telephone calls are a must if you are serious about getting paid.  A system is critical.  If you don’t keep records and don’t have a system and procedures for follow up phone calls, things will quickly get out of hand and customers will run rings around you.  

Have a system for managing follow ups and ensuring that everyone involved is informed about what they need to do and when they need to do it.  Human beings are fallible, but systems keep them on track.  It’s also worthwhile to give customers a polite call a few days before a large payment is due to ensure everything is on track for your payment.

Debt Collection

Many collectible debts are simply written off and it’s a crying shame.  For the sake of paying a debt collection agency, you can get a decent percentage of the debt, which is better than accepting nothing.  There are good collection agencies who will handle the task professionally.  Don’t write off a bad debt until you have tried professional debt collectors.

Customer Relations

Good customer relations make a huge difference to how quickly you get paid.  If you are in good contact with customers and know they are happy with your service or product you are much more likely to get paid.

See our eBook  ‘How to Get Your Customers to Pay You on Time and Improve Your Cash Flow’