There are a lot of reasons why customers pay late. Not having money is only one and generally not the reason why most hold up payment. Here are a few questions to ask when a company is not paying obligations to your firm or when they are specifically paying invoices out of order (not following chronological due dates). Remember, when it comes to companies not paying, it generally stems from someone’s errors and not primarily poor cash flow.
Questions for past due accounts receivable accounts:
- Who are the culprits (past due accounts)? Run your accounts receivable aging and start with the far right columns which are the oldest unpaid invoices. Make certain before initiating any correspondence that all payments have been applied correctly and no credits are to be issued which are not reflected on the customer’s AR (accounts receivable) aging (list of invoices sold on extended credit).
- What are their complaints? Have you talked to them on the telephone? In the case of past-due invoices, you can try to collect through emails, statements and faxes, but speaking on the telephone gets to the issue immediately like nothing else. Forget all other forms of collection — Talk to them on the telephone. Call them and tell their receptionist that you will be glad to wait to get hold of someone to discuss their past due invoices. If necessary, ask for the payables clerk’s supervisor and get a clear answer as to why they are not paying an invoice.
- Why are they holding up monies? Ask them directly why they have not paid their bill. Do they need a copy of the invoice or proof of delivery? Do they need anything supplied by your company’s quality control department? Be cautious and be very courteous because they may be ready to throw responsibility back into your lap.
- Is their non-payment our company’s fault? Are they not paying because of quantity shortage, price discrepancy, quality issues, out of specification material or something else? Did your inside sales personnel get a written purchase order? This ensures that the person who ordered the goods was authorized to do so.
- Are they mad at us? Maybe they are perturbed about shipments they have received that have nothing to do with those for which they are holding up payment. Some companies stop paying to get their vendors’ attention. Remember you must always involve sales personnel when there are product disputes and complaints. Sales needs to get involved to negotiate a settlement with the customer when it comes to rejected parts, problems with products or services poorly performed. Someone needs to bring the contracts out and begin the conversation with the customer right away. This cannot and should not be negotiated with collections personnel. The payment issue is secondary to this production and delivery problem.
- Who in the sales department has called on them recently? Did anyone follow up with this customer after the last rejection or missed shipment or problem parts that were sent back? Do these previous quality or delivery issues have anything to do with non-payment? If this does not, what are their payment plans or are they upset or need further sales support?
- Find out why they are mad at us. Past due company accounts receivable invoices normally mean a customer is upset enough to stop paying you –they may be mad about something. The first thing a company’s purchasing department does when the goods or services are not up to par or do not meet the criteria listed on the purchase order is to order the accounts payable personnel to stop all payments. The only leverage the customer has when he is upset is to stop paying you. He knows this gets your attention. In fact, this gets everyone’s attention. Accounting personnel who are informed of product problems need to immediately bring in their quality control personnel (rejected parts) and the assigned sales person to follow up with customers to get problems holding payments resolved.
- Do collections every day. Perform collection actions as frequently as necessary (whenever you have a past due invoice which is always). Send statements listing all invoices and highlight those that now need to be paid.
- Make it easy for the customer to contact you. Include your name, phone or fax numbers or your email address and ask what needs to be done for these past due to be paid as soon as possible.
- Approach your customer humbly. On initial contact, take the approach that your firm has done something wrong. Do they need a copy of the invoice? Do they need proof that the item(s) were delivered? Is there a dispute about quantity, quality, and price or missed deadlines? Ask all those questions before pressuring for payment. Give the customer the opportunity to vent and ask for necessary documents or to file complaints about the sale first.
- Show respect always. Be appreciative and show respect and appreciation to the customer for their business. This missed payment or slow pay may be temporary and is a fairly common practice of customers to get a nonresponsive vendor’s attention.