Often times when collecting on accounts receivable we can end up in a rut. We collect what we can from the same accounts every month and complain about those that continually give us a hassle when we try to collect on them. However, there is a way to break that cycle by understanding and using a field very different than ours – Psychology.

This whitepaper will take a look at the link between accounts receivable and psychology, common excuses people give for not paying, how we can analyze the excuses and behavior using psychological theories and how we can react to collect more quickly now that we understand their behavior.


When a customer doesn’t pay on time, we can spend a lot of time wondering “why?!”. Wouldn’t it have been much easier for them to have simply paid the invoice on time, instead of causing all of the backlash for themselves and their company? Of course, there are accounts where they really didn’t have the means and money to make the payment. However, there always seems to be customers who try to get out of paying just because. These are the accounts that we rack our brain over.

Although accounts receivable and psychology couldn’t seem like they are any further apart, accounts receivable professionals can truly benefit by understanding the psychology behind why people make payments when they do.

Psychologists study how the human brain affects the choices and behaviors that people make. Understanding the basics of psychology can give accounts receivable professionals insight into why customers choose not to pay – especially when it seems like the easiest decision they could make would be to pay on time. So what are the benefits to understanding the psychology behind accounts receivable?


By studying the basics of psychology, a collector will have a better grasp of the typical behaviors of non-payer. For example, if a customer is beginning to avoid phone calls or is taking a long time to respond to emails, they may be hinting towards the fact that they aren’t going to pay their bill. Once these common behaviors have been recognized, the collector can make extra effort to reach out to the customer and get the issue resolved.


Once the typical behaviors have been recognized by the collector, psychology basics can help the collector know how to respond to the customer. Instead of getting frustrated, angry or lashing out, the collector needs to know how to speak their language. By understanding the psychology of accounts receivable, you can entice the customer to pay on time.


The psychology of accounts receivable doesn’t just stop with recognizing behaviors or knowing how to talk to the customer. Psychology can also help us say or do the right thing to get the customer to pay up. Whether this is using incentive programs or threatening to take something away, understanding who your customer is and how they think will allow you to decide the best route to take in getting them to pay.

Psychology wasn’t just a required course that we will never use again. It can actually be useful in many different aspects of our life, from dealing with friends and family members to meeting new people and even in how we approach accounts receivable.


No collections department is free of crazy payment excuses. In fact, if you’re a small business you’re more likely to come across late payment excuses. Dun & Bradstreet reported that majority of the culprits for taking a long time to pay their debts are large businesses with over 500 employees, leaving small businesses to try and handle the excuses. Sometimes these excuses are legitimate, while others may be simply trying to skirt payment. The trick is being able to discern when you can trust your customer’s payment excuses and how to respond so you can forge long-lasting, mutually respecting relationships with these customers.

Here are the 8 most common payment excuses


This is one of the most common excuses on the books. The best way to deal with this problem is by calling the customer and staying on the phone with them to confirm they received it, either by email or by fax. If they truly aren’t receiving it, help them to enter your email address into their sender list so that your emails are not blocked.


This is the case for a lot of businesses, and it truly may not even be an excuse. Some accounting departments are required to have the purchase order number before they can pay the invoice. As a way to avoid this entirely, include the purchase order number on every invoice that you send.


Although customers do have the right to refuse payment if a product was faulty, sometimes this is just a tactic used to get out of paying. Make sure that documentation is always provided on what exactly the customer will be getting and what exactly was delivered, and get it signed by the customer.


Whatever terms that you create for payment need to be followed by the customer, whether they are 30, 60 or 90 days. Sometimes customers will misinterpret when the net days begin, whether that is when they received the product or when they received the invoice. Make sure that you are always invoicing immediately after they receive the product or service. Also, follow up with payment reminders and how many days they have left until the due date.


This is a commonly used diversionary tactic, but it can also be a legitimate excuse. The key here is trying to decide which is which. Some businesses require two signatures on their checks and if the person truly is not in, they may have their hands tied. However, if you’re continually hearing this same excuse from the same company, it may be time to ask to talk to someone in charge of their accounting department.


The best way to excuse yourself from not paying? Deflecting it on to someone else. If your customer tries to say that the invoice isn’t correct or that it was shipped to the wrong place and the problem is your fault, make sure you are getting every detail in writing. This way you can prove that you sent it where it needs to be.


This is one of the most honest excuses a business can give. No one wants to admit that they cannot afford to pay for something. This is an excuse you need to use your own judgement on. If they are a brand new customer and are already stating they have cash flow issues you may need to rethink the relationship. If it is a loyal, longtime customer, you may need to simply sweep this one under the rug and offer some leniency.


As Dun & Bradstreet’s report pointed out, the larger companies are usually the ones handing out these excuses to small businesses. If a large company tries to brush off your collections process for their more “prestigious” accounts, then you need to take real action. Explain your nonpayment policy, including any legal repercussions, to this customer.


Psychology can play a huge role on why you’re not collecting as much as you should and how you can optimize your efforts to collect even more. The study of how the mind works and effects our behaviors gives a lot of insight into the actions of our customers – and more specifically why they are avoiding payment. Understandably, however, many accounts receivable professionals aren’t psychology experts.

Psychology is a complicated subject. There are many different areas of study, beyond just the basics. There are psychologists who deal strictly with patients in a clinical setting, psychologists who do comparative analyses with our behavior versus animals and psychologists who spend all their time conducting experiments. An accounts receivable professionals time isn’t spent wisely by studying all these different branches of psychology, instead they are better served by focusing on the behavioral branch.

There are a few different theories that stem from behavioral psychology that can explain why customers aren’t paying on time.


The goal gradient theory suggests that people become more motivated to reach a goal when they feel they are closer to reaching the end goal. One common example of this is complimentary punch cards that you might get at a coffee shop. Studies conducted by Scientific American showed that customers using a loyalty punch card were more likely to buy more coffee when they were getting closer to reaching their free cup. This can be translated to the accounts receivable field by creating more incentives for customers for paying on time.


The recency effect of psychology shows that, understandably, people are able to recall most easily those things that were presented to them last. Although this may seem obvious, this psychological behavior needs to be taken into account and put into action in the accounts receivable department. To get more customers to pay on time, it’s important to send constant reminders to customers. Keeping yourselves at the forefront of your customer’s minds will ensure they remember to pay you first, before all other vendors.


This psychology theory is more to do with ourselves than our customers. The fundamental attribution error theory is when we assume someone is at fault due to issues with their own internal personality, as opposed to an external factor they had no control over. For example, if a customer paid late, we might assume that they did this because they are lazy or they are doing it out of spite, when in fact they may have been unable to make payment because the invoice wasn’t approved by management. For these situations, it is best to step back and have a conversation with the customer to find out what is really going on.


Prospect theory is a behavioral economic theory. The idea is that people view losses and gains differently – holding losses with more value. Scientific American found in their study that, due to this theory, people are more likely to pay off small debts than large debts, no matter what interest will incur on either accounts. For this reason, accounts receivable professionals may want to focus more on collecting large debts first as they are the most likely to go unpaid.


No matter how automated the process of accounts receivable becomes, you’re still dealing with real people that need to pay you. There is always someone on the other end of the phone who is giving you the excuse for not paying or explaining why they need to dispute the invoice. Knowing how your customer’s behavior impacts their payment or non-payment can help you to avoid a crisis before it occurs. However, knowing is one thing, taking action is another. Below are a few tips on what you can do proactively to make your customer more apt to pay on their open accounts.


The most important part of accounts receivable is picking up the phone and talking to your customers. Send welcome letters and get in touch outside of emails every so often so you can create a relationship. By getting a feel for the customer outside of emails, you will be able to notice a change in their behavior that could indicate financial troubles. For example, if the customer starts refusing to take your calls when you used to speak frequently or an unusual argumentative attitude could mean troubled waters ahead.


Once you’ve created a relationship with the customer, you will get a feel for who they are and what motivates them. If you have a customer that has a big ego, you may find that you are most successful collecting payment if you play towards his ego, telling them they are the best customer and can continue their success by paying by a certain date. On the other hand, if your customer tends to be flighty and organized, you may find that they need more hand holding. Try sending them calendar reminders for payment and offering online bill pay links in emails to make the process fool-proof.


Empathy is an emotion that can sometimes take people years to master, but it is one of the most important abilities in accounts receivable. If you are able to empathize with a customer when they are struggling, they are more likely to pay you than if you are clearly frustrated and angry. Let the customer know that you understand where they are coming from and listen to them, then introduce a new date for payment. You’ll be surprised how many are willing to pay you before any of their other vendors or invoices.


In a recent National Association of Credit Management Business Credit article the psychology behind benefits was explained. Most of the time, people are more shaken by the loss of a benefit than they are excited for attaining a new benefit. In accounts receivable, this means that your customers will likely be more upset if a benefit, such as a 2 percent credit for paying early, is taken away from them than gaining this achievement. Explain to the customer what they will lose out on if they don’t send in payment right away and you may see payment come in more quickly.

At first glance, accounting and psychology seem like two topics as far away from each other in similarities as possible. However, psychology plays a huge role in the reasons why people do or do not pay their invoices on time. Understanding that psychology helps the accounts receivable department to get customers to pay more quickly and more often.