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Customers who pay their invoices on time reduce your Days Sales Outstanding (DSO), improve cash flow, and strengthen your investment position.
You want as many customers as possible to pay on time. But how can you achieve this? By rethinking your accounts receivable management. Discover how to tackle this for your organisation.
Establish clear payment terms
There are various payment models you can offer your customers. By opting for prepayment or payment based on pre-paid credits, or points, you naturally build in payment certainty.
However, this approach doesn’t always fit every organisation, product, or service, particularly in B2B transactions. You can ensure payment certainty by drafting legally binding payment terms and having both parties sign them.
Review your invoices carefully
To influence your customer’s payment behaviour, you need to look beyond just the payment process itself. Examine your invoices closely: are they correct, and does all the information appear clearly?
Much of this data comes from your administration, so it needs to be accurate. Are the correct customer and order details included? Is the right PO number processed, and – depending on your business model – is the correct pricing applied?
Automating the conversion of orders or quotes into invoices can significantly speed up the internal processing. It is essential that various systems and applications can communicate smoothly and effectively.
Simplify the payment process
Naturally, you can also influence payment behaviour by simplifying the payment process itself. By making it as straightforward as possible, you lower the barrier to payment.
Offering various online payment methods allows customers to choose the one that suits them best. Consider options like iDEAL, PayPal, or credit card. Automatic direct debits can also be a good alternative for both the customer and your organisation.
Including a direct payment link or QR code on your invoices, emails, SMS messages, and potentially your customer portal makes paying truly easy.
Don’t forget the reminders
No matter how well-designed and structured the process is, there will always be a small percentage of invoices that are not paid on time. The goal is to keep the collection of these overdue invoices as amicable as possible – between you and your customer.
With appropriate credit management software and a smart reminder process, you can still collect a significant portion of late payments. Automated and in a friendly manner, ensuring that the customer relationship remains intact.
A few tips:
- For larger volumes of overdue invoices, automating the reminder process is indispensable. Consider using data and Business Intelligence software to analyse your customer base’s payment behaviour and segment customers to determine follow-up actions.
- Integrate the reminder process within the invoicing platform rather than the financial system. This is more efficient as it eliminates the need for feedback from the financial system.
- Keep the tone of reminders friendly and the language clear. Generally, customers are willing to pay promptly after receiving a reminder. A threatening tone is unnecessary.
- Consider the entire reminder process. How many steps does it involve? Do you remind by SMS and email, or is there also phone contact if payments are delayed? Do you charge administrative fees, and how are they reconciled? When do you stop reminding? Do you then end the service, choose a debt collection agency, or is ‘social collection’ a better fit for your organisation?
- If you eventually proceed to a legal collection process, ensure that your invoicing platform is integrated with that of your collection agency. This ensures an efficient and error-free process. Note: the file must be complete and compliant with legal and regulatory requirements.
And Finally:
Despite what you can influence through your accounts receivable management, the most crucial factor is that the quality of the services or products you provide is up to standard. Our experience shows that a satisfied customer is always willing to pay 🙂.
