Two of the most important factors which I have learnt about extending B2B credit over the past 40 years are:
"If you don't educate your customers on the importance of paying you within terms, they will pay you when it suits them!"
"People respect discipline and they take advantage of kindness."
It doesn't take long for your customers to work out whether or not they need to pay you promptly. If you send indicators that paying you is not important, they will pay you when it suits them. Sometimes they will not pay you at all. On the other hand, if you show that your business expects and demands to be paid according to terms, the customer soon learns that you are serious about being paid within trading terms.
There are a number of indicators which your customer picks up on as to whether being paid promptly is an important factor for your business. The following is a brief list of these indicators.
1 One clear indicator which suggests being paid according to terms is not important, starts with the public announcement that "... we run a lean and mean operation" or "... we are sales and marketing focused."
My experience suggests these statements indicate management is more focused on sales than being paid within terms. It appears management is more interested in raising invoices which is the priority, whilst the payment of invoices is not so important. It also shows that management expects the payment of the invoices is a foregone conclusion. This is irrespective of whether the invoice was raised correctly.
2 Customer service is always about making a sale and raising an invoice, not correcting any mistakes or managing difficult enquiries.
The indicators of this situation are when customer enquiries go unanswered because everybody is focused on meeting an impossible sales budget. Alternatively, there is a lack of focus on timely resolution of enquiries which do not lead to raising another invoice.
3 There are visible contacts for sales and customer enquiries on suppliers website and sales documentation. Unfortunately, there are often less easily identified contacts for credit and accounts enquiries on the same website and documentation.
4 There is little effort to maintain customer records in a fit state to aid the sales and payment process. Consequently, many invoices are raised which are sent out incorrectly, or accounts receivable are unable to locate the right person to contact for payment.
5 If there is a dispute which requires a decision in favour of the customer or a credit claim which should be authorised, and either would negatively affect the salesperson's or management's bonus, these decisions will be deferred as long as possible.
6 Management and the sales team will often dispute and then try to overrule credit management decisions to withhold credit. Their favourite reason for taking such act is "...for the good of the company!"
7 The credit and accounts receivable function is often under resourced in quality personnel and the tools they require to operate effectively
These and other factors provide your customers with an excuse not to pay you in a timely manner. In addition, these factors help show your customers whether you expect to be paid within terms. By eliminating these enabling factors, you can help train your customers to pay according to your terms.