The invoices have been sent and now the money will come in automatically. This seems an all too easy assumption, but make no mistake: the payment behavior of your debtors can be controlled by a cleverly thought out process. What are the challenges?
This is part 5 of a series of blogs from FIQAS on billing process optimization.
Control your debtors’ payment behavior
If your debtors pay on time, your DSO will go down, your cash flow will improve and your investment position will increase. Every day sooner a payment is received will improve your liquidity. Conversely, each day of delay has an impact on your cash position. Thus, there is a lot to be gained by a smart set up of the processes affecting the payment behavior. The payment process itself, as well as the process that precedes it, is essential for timely payments.
A smooth billing process as a first step towards correct payment behavior
A smooth billing process (see FIQAS’s previous blogs on this subject) is an important prerequisite for good payment behavior. Correct and complete information on the invoice ensures clarity and trust with the customer. Invoices are, in turn, the result of the correct administration of customer and order data, and – depending on your business model – of a pricing process. Of course, the quality of the services or products delivered must be right. After all, a satisfied customer is willing to pay.
Certainty of payment can be enforced even before, namely in the payment model that you offer your customers. The benefits of prepayments and direct debit payments are evident. Also a model like payment based on prepaid credits, credits or points, will increase correct payment behavior.
The simpler the payment process, the lower the payment threshold
The payment behavior can – of course – also be controlled within the payment process itself. The easier the payment method, the lower the payment threshold. Fortunately, ever more payment and debt collection options are available:
- Nowadays, digitized payment mechanisms are the rule rather than the exception. Invoices are presented as PDF by mail. Invoice emails include a direct payment link or a link to a payment service provider’s platform. Invoices can be collected and paid from a web portal. And, there is also the real digital invoice: the UBL invoice.
- Within the EU direct debit takes place using the SEPA standard. In case of a reversal a code is given. Depending on this, there may or may not be re-debt collection. In case of a reversal due to insufficient balance, for example, a new collection attempt can be made within a number of days.
- In case of large B2B customers, you may consider billing at the moment that best suits your customer. This customized approach may require more customer contact, but it will lead to faster payments. The relationship with your customer will benefit as well.
Do you still need to send payment reminders? Keep it friendly
No matter how well the process is thought out and organized, there is always a small percentage of invoices that are not paid on time. The challenge is to keep the collection of these outstanding invoices as easy as possible. With the appropriate software and smart reminder procedures, a large proportion of late payments can still be collected. In an amicable manner, keeping the customer relationship intact. A few tips:
- With larger numbers of outstanding invoices, a computerized workflow process for dunning is recommended. Ideally tailored to the different segments in the customer base. Use a data warehouse and business intelligence software to analyze the payment behavior by segment and determine the follow-up action based on it.
- Locate the reminder process where it belongs: in the billing platform and not in the financial system. This works much more efficiently because you do not need feedback from the financial system.
- If payment still no payment is made, service should probably be terminated or restricted. In telecom for example, a provisioning link is useful for this purpose: (automatic) service clipping in the absence of payment based on a signal from the billing platform.
- And if the first phase, friendly collection is to be abandoned: integration of the billing platform with the collection agency’s system ensures an efficient and error-free process. Please note that the data file must be complete and comply with laws and regulations.
Collection and credit management @FIQAS
Very common among FIQAS customers is that invoices are made available in a customer portal. The customer receives an invoice notification by mail. The mail contains a link to the invoice in the customer portal, but the invoice can also be sent as an attachment (in PDF). Sometimes the billing information is already shown in the text of the mail. In addition, these mails almost always contain a link to iDEAL or another payment platform, possibly through a payment services provider’s platform.
The payment status can be shown in the mails. This happens dynamically: an outstanding amount is presented in red. If the mail is reopened after payment, the payment status appears in green. The mail always shows the current payment status. Finally, the notifications include space for marketing texts, which can lead to upsells and cross-sells.
Then a few customer-specific examples:
A blueprint for different entities around the world
A well-known internet marketplace has different entities in countries around the world. In the FIQAS system, the processes are based on the same blueprint. However, the collection methods used are somewhat different.
For clients in Belgium, Italy, Germany, a SEPA direct debit is carried out, a relatively simple process. The advantage of SEPA is that it is a European standard, which facilitates the implementation for new entities and / or European countries. This requires a 100% correct administration of customer data, plus an end customer’s mandate.
Customers in the Netherlands only pay via iDEAL or PayPal, no debt collection process has been set up. They receive a notification by mail, in which an active payment link always shows the current payment status. For the other countries, on the other hand, FIQAS has set-up separate collection services based on national requirements. This is the case, for example, for Australia. In other countries, there is even no debit / debtor process, but a process of prepaid billing (for example, via Payment Service Providers like Braintree and Adyen). Customers in these countries only receive an invoice afterwards.
For all entities a straightforward dunning process is used. No paper reminders are sent, all communication goes by email.
Technical reversals, specific reminder handling
Direct debit payments can be reversed for various reasons. Due to a technical cause, for example, because data is incorrect or incomplete, or because there is insufficient balance in the account, or because the account holder decides to reverse the payment. Reversals for technical reasons are recognizable by specific codes, and are part of the automated process.
For a German internet demand and supply platform for professionals, the reversal process is configured to ensure that when the balance in the account is negative a new direct debit attempt is made automatically, 3 days after the first failed attempt.
This will be announced in the reminder email to the customer. The reimbursement may only be executed once, endlessly trying is not allowed. If the second collection attempt fails, the invoice will be included in the dunning process.
Well-automated credit management: efficient processes lead to more timely payments
If it is still necessary to send reminders, it is crucial to close the dunning process in the first, friendly phase of collection. Avoid the tedious course of judicial collection as much as you can, as this is expensive and will bear heavy on the customer relationship.
Other topics and why this series?
Other topics in this series:
- Part 1: Billing, it could be better
- Part 2: Data collection
- Part 3: Rating
- Part 4: Invoice creation and distribution
- Part 6: Auditability and compliance
The FIQAS specialists have a wealth of experience in organizing, executing and optimizing billing processes. The business cases that we see are often narrowed down to one or two of the above aspects. With this series of articles, we try to do justice to the bigger picture.
In part six of this series we will focus on auditability and compliance. We will elaborate on the billing process regulations and the ways to ensure the quality of the process.
Martin van Noort
FIQAS is an authority on invoicing processes, established in 1989, with renowned international customers and operating from Aalsmeer (greater Amsterdam area).