If you have to sell goods or services on credit terms to your customers there is always the risk of non-payment for the supply of those goods or services. The kep is to have processes in place to minimize non-payments.
Let’s start at the beginning of the billing cycle: a business produces an invoice on or after the date of delivery of services or supplies clearly showing what goods or services have been supplied on what date and where to. What other information should be included on an invoice? What is the most critical thing to a business when trading business to business and offering credit terms to customers and is often missed off the invoice? Credit terms! Without this information a customer will believe they are able to pay when they want to rather than when the payment is truly due. An invoice must always state clearly the terms on which the invoice is due for settlement. The presentation of an accurate invoice to a customer is a very important first step after goods and services have been supplied in avoiding non-payment for those goods or services.
The second important step is the following-up of the invoice after it has been sent to the customer to ensure it is paid in a timely manner. Contact with customers should be a continuous process up until the point payment is received. If an invoice is still outstanding 60 days after the invoice date and there has been no further contact with the customer, there could be a problem collecting.
So how can a business avoid non-payment of invoices? Follow up! Here is an example of a good follow up and collections plan:
1. Start following up with the customer a day or so after the invoice has been sent. Make sure the customer has the invoice and ask for a payment status. Also, ask if the customer is satisfied with quality and quantity of the goods or services supplied. If you are dealing with a large company check to see if the invoice has been approved and submitted to the accounts payable department for payment on the due date. It is also a good idea to record the collection conversations.
2. The next contact should be on or just before the invoice is due for payment to confirm whether the payment is forthcoming. Get a commitment from the customer. This should be followed up say a week later and so on if payment is not received. Again record dates of conversations and any promises made or excuses for non-payment.
3. Know how to handle customer delays. With a lot of businesses, payment is withheld until it is asked for. It can be a case of he who asks first gets paid first. Some other customers may employ deliberate delaying tactics to stretch payables and conserve their cash. With any of these tactics ask who approves invoices for payment and follow up with his person directly.