Is Paying You a Low Priority for Your Customers?
Best Practices for Getting Your Customers to Raise the Prioritization of Payments to Your Business
Collectors face numerous challenges when attempting to collect past due balances from business customers. These difficulties can stem from both the financial and operational circumstances of the debtor as well as the interpersonal dynamics between the collector and the customer. In addition, collections departments may be understaffed or lack the necessary resources and technology to effectively manage and track collections efforts.
Successful collectors are quick to recognize the challenge they are up against. When a customer allows their account with your company to slide into a past due status, it is the job of the collector to find out why. This is important, because if you are dealing with a recurring situation, identifying the root cause will allow you to implement a collection strategy and tactics that will effectively address the situation both now and in the future. Failure to do this only serves to embed inefficiency in your collection process.
Four of the most common problems underlying late payments are:
Financial Distress: When a customer is in trouble, the questions to ask are, will they recover and if not, how long can they last? Some distressed companies can go out of business quickly, but for others the death spiral can take years, allowing creditors to continue selling on a profitable basis as long as they have taken the necessary precautions.
Economic Conditions: While economic conditions may cause a customer to become distressed, the more likely outcomes will be transitory in nature requiring near and medium-term remedies. Also, as demonstrated during the Covid recession, certain industries may be more prone to economic fluctuations, affecting the ability of businesses within those industries to pay their debts.
Discrepancies and Disputes: Most of the time, disputes involve one-time situations, that once addressed go away. However, discrepancies, which are often caused in your sales and billing processes, will keep recurring until you address your system weakness.
Communication and Relationship Barriers: Collectors also need to balance the need to collect debts with the desire to maintain positive business relationships. Aggressive collection tactics can damage long-term business relationships. Customers, meanwhile, may avoid communication or be unresponsive, making it difficult to negotiate payment plans or understand the debtor's situation. In larger organizations, decision-making authority may be spread across multiple departments or individuals, complicating the collection process.
Addressing these challenges requires a strategic approach, combining effective communication, negotiation skills, legal knowledge, and an understanding of the debtor's financial situation. In order to do so, collectors need specialized training and expertise to handle complex business collections, negotiate effectively, and comply with legal requirements. Furthermore, collectors often need to work closely with other departments within their organization, such as sales and logistics, to develop comprehensive strategies for managing and resolving past due accounts.
The Problem of Payment Prioritization
No matter a debtor’s situation, it is very likely they are prioritizing payments. To some extent, many businesses prioritize their payments, often paying critical suppliers and employees first. Furthermore, when a business owes money to multiple creditors, competition for payment can be fierce, reducing the likelihood of prompt payment. With either situation, collectors may find themselves low on the list of priorities.
A customer that is in financial distress, will almost always implement a payment prioritization scheme. Changing economic conditions can also create a situation where firms start prioritizing payments, if only to bolster their cash on hand should the situation deteriorate. And when there are invoice discrepancies, those invoices are typically put aside until all the clean invoices are processed. In addition, if your customer has a dispute with your firm on a specific invoice, they may withhold all payments until the dispute is settle.
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