If you invoice customers and provide payment terms, you’ll know that around 60% of invoices raised will be paid late, many of them being paid weeks or months after the due date – it is the norm and it seems to be getting worse.
Couple late payments with the increasing number of insolvencies of all sizes within most sectors and it is no wonder many companies are worried about the future – how can they have any confidence when there is no accurate visibility on incoming cash?
I think we can all agree that the most critical elements for Credit Control and maintaining a healthy business right now include:
- Collecting accounts receivables as quickly and efficiently as possible.
- Knowing exactly when to expect cash to come in.
- Early identification of customers’ with potential cashflow problems.
- Time and knowledge to identify what actions need to be taken today – who to chase first, who to put on stop, and which customers should I call right now to get a result.
This is where knowing the REAL payment patterns of every one of your customers can help.
If you know the day when a customer is going to pay (even if it is weeks away) you can adjust your Credit Control activities and cashflow forecasts accordingly.
In Credit Control, you can focus on the customers who will pay you now to get cash in fast, focus less on the ones where payment patterns say the customer Is not likely to pay you for another three weeks, saving you time to allow yourself to focus on risks you didn’t even know were there… the customers who have just broken their normal payment pattern.
When a customer changes the frequency with which they pay you, you need to know right away, and you need to know what their problem is as this can be the earliest sign of customer cashflow problems. You must act quickly whilst you still have time to mitigate risk.
And if your business, like many, use credit ratings to assess whether you are happy to deal with a business – ask yourself this:
If Credit Rating warnings worked why is bad debt so rife? And why are so many suppliers, who use Credit Ratings as a basis to assess risk, still left writing off invoices and holding the ‘bad debt baby’ of yet another firm going bust?
The data most Credit Rating agencies use can be historic and generic. Some might alert you as soon as they get critical information, which sounds great unless their real time updates are based on events that happened months ago and are only just filtering through now.
For example, if a Director or Business you deal with gets a CCJ today it will be based on an event that happened months ago, maybe longer. Ideally you would have liked to get an alert well before the CCJ was issued or, even better, as soon as your customer started to show the first sign of a cashflow problem – then you could have changed your payment terms with this customer or even made the decision to take your business away from the risk completely.
That is the business agility that knowing REAL customer payment patterns and using insights to make ‘in the now’ decisions can give you.
Where decisions around cash are involved it is far too important to rely on guesswork. And it is folly to forecast cash will come in on time when you know 60% of it comes in late (we still can’t get our heads around this method). Using averages to estimate will give a warped view and hide insights – an ‘it will do’ result until the average will, in time, land you in the mire.
THE ONLY NUMBERS YOU CAN RELY ON are the numbers your customers provide you by way of when the pay you – they are your customers, with their own way of paying you – so unlocking their payment pattern is what brings actionable insights. And with this pattern cracked, you will have every payment date for every invoice in advance, and every early warning sign you will ever need to avoid bad debt.
That’s the importance of knowing your customer payment patterns – try it and see what difference it can make to your business.
Stay Happy – Rob Sutton – WOW Intelligence