Sometimes customers have a Days Payable Outstanding (DPO) policy. DPO policies are used to conserve cash and reduce borrowing cost. In these situations it doesn’t matter what payment terms are, customers will pay according to their DPO policy, which usually results in late payments to vendors.
Customers that use DPO policies are being short-sighted. DPO policies can cause a rift between customers and vendors, which can result in higher costs and supply disruptions for the customers. Vendors are faced with the decision of how or whether to continue doing business with customers who delay payments because of DPO policies.
Here are some suggestions on how to handle customers with DPO policies.
It is important under any circumstances to have a credit policy in place, and to make sure that customers are aware of it. If you find a customer has a DPO policy and is making late payments, send them a copy of your credit policy, and make sure they understand the ramifications of late payment under your credit policy, e.g.
- Good credit standing – Late payments may affect credit standing with your company and other vendors.
- Interest and late charges – Past due amounts may incur interest and late charges.
- Deposits or prepayment – Deposits or prepayment may be required to place orders.
When you identify a customer with a DPO policy that is paying late, increase the number of reminder emails to fit the customer’s payment habits. Customize the email content to fit the situation. Standard emails are less likely to have an impact on the situation.
Customers with DPO policies should be contacted more often. Make sure the message is consistent with your credit policy. Use personal relationships to leverage the customer for on-time payments.
These suggestions take extra time. Automated accounts receivable solutions can give your AR team the time they need to deal successfully with DPO customers.
AR and AP issues are easier to deal with if you have automated systems. Cloud-based AR and AP solutions with self-service portals and automated processes keep vendors and customers connected no matter where they are located.
Automation can help to reduce or eliminate the reasons for getting paid late. Automation makes this possible by eliminating or reducing the road blocks and delays that can cause late payments. Automation increases efficiency, reduces costs and results in increased profits, cash flow and shareholder value.
Lockstep Collect, a leader in cloud-based credit and collection platforms, can help you collect cash in 4 ways:
- Cloud-based solutions
- Automated customer communications
- Customer self-service
- Collections Activity Management
Lockstep Collect is an experienced software partner that can help you maximize your collections and cash flow in the new normal.
If you would like to learn more about how you can benefit from AR automation, and improve cash flow 31% or more take our AR Automation Product Tour.