Avoid nonpayment | Four Ways to Ensure Your Organisation Gets Paid
Unfortunately, as most businesses will attest, getting customers to pay an invoice on time can be challenging. The failure to pay an invoice can be down to a number of reasons. This may range from the invoice being disputed, due to faulty goods being received, or incorrect paperwork being processed. While one of the most serious reasons for nonpayment of an invoice is fraud. It may come as a surprise, but this isn’t uncommon, with fraud costing the UK economy £190 billion a year.
However, one of the most common reasons for invoices going unpaid is a lack of cash. This is often purely a matter of a customer realising they don’t have the funds to pay an invoice. For suppliers and their credit management team, nonpayment of invoices causes a massive headache, not only does it require extra work to chase for payment, but it can also significantly impact their own organisation’s cash flow. It’s vital that businesses ensure they have the correct procedures and policies in place to prevent the nonpayment of invoices. Here are our top four tips to ensure you get paid:
1. KYC = Know Your Customer
Credit managers must always keep KYC at the back of their minds. While it’s great to get a new customer, it’s important to know as much about them as possible. Too often, businesses fail to ask simple questions such as, who is this customer? What’s their background and why have they come to my organisation? By knowing who you are dealing with, it’ll be easier to decide whether they are a client you should take on and if there could be any risks involved.
Prior to the sale, it’s vital to perform pre-sales credit checks. Consult a credit reference agency in order to gain a credit report which will help you to determine whether this is a customer you would like to take on. When looking at a credit reference report, be sure to ask the following questions: Are all the accounts up to date? Does everything look good? Is it an established company? You should also check that the information given here matches the details given on the application.
2. Establish clear terms of trading
Make sure you clearly communicate your terms of trading to customers from the outset of the relationship. Clearly state, that you operate strict 30-day payment terms and settlement must be made within these terms.
3. Implement strict credit control terms to avoid nonpayment
Once you have established clear terms of trading make sure your credit control team strictly adheres to them. Ensure customers are made aware of the consequences of failure to comply with these terms or nonpayment. For instance, if they fail to make payment within the 30-days, on the 31st day your credit control team will chase for payment, on the 35th day you will send the debt off to a third-party collection activity and then after that legal action will be taken.
4. Align your sales team
Your sales team will be the first ones to deal with customers and will generally prioritise the sale with little thought to how and when payment will be made. Ensure your sales team is aligned with your credit control procedures in order to prevent any deviation from these terms when agreeing a sale. This will help to adhere to the trading terms and avoids giving customers unnecessary or other information.
In addition to these pointers, it is important organisations implement a modern-day credit management system. As part of this, automation can help take away some of the drudgery of collection management, such as automating communication to chase for nonpaying customers. Credit management teams must also be mindful of the fact that both businesses and systems evolve. Therefore, be sure to move with the times and evolve all business procedures, including credit management, accordingly.