It’s one of the hard truths of business – one that countless vendors have learned the hard way:
Making sales isn’t the same thing as making money.
In other words, you don’t get the customer’s payment until, well, you actually get the customer’s payment. Until that moment, all you’ve got is a signed purchase order and that nice, glowy feeling of affirmation that comes when a customer chooses your product or service over the competition’s.
Alas, those orders of yours won’t count as legal tender when it’s time to make payroll or cover the rent. (And nor, for the record, will your feelings of affirmation. Sorry.)
No, you don’t have your money until the customer pays.
This makes past-due payment an irksome problem. Your business isn’t designed to be a bank that collects interest. So tardy payments not only clog up your cash flow – they erode your profits.
An increasingly obvious problem
The problem of past-due payments is becoming more and more obvious to companies of all sectors and sizes. Why might this be so? The same reason why anything is so in the 21st century: The Internet.
An ever-higher proportion of payments occur not as a check but online. That means fewer of your payments should be experiencing any lag between the customer’s “yes” and your bank account’s “ka-ching” unless something is wrong.
So, when a customer doesn’t pay on time, it’s easier than ever to find out. Yet past-due payments are still an all-too-common occurrence according to Atradius. Consider:
- 90.9 percent of companies report frequently experiencing late payments. Feel free to derive dark solace from this fact, for you are not alone.
- Even more stunning, nearly half of all receivables – 47.6 percent – are past due.
- Most businesses stipulate a 30-day window for payment. Window, meet brick – the average payment duration is 63 days.
- Then there’s this: 25.7 percent of past-due receivables result from disputes or process issues.
Wait, what?! Yes, you have control over past-due.
That last point is worth thinking about in more detail. Disputes and process issues represent the past-due problems that are fully within your control.
First, payment disputes: The bottom line (literally and figuratively) is that the faster a dispute is resolved, the faster the receivables will come in.
Having a dispute-resolution process with clear workflow and rules is the first step toward accelerating payment on this category of past-due receivables.
As for process issues, your best bet is to implement a customer-onboarding workflow that focuses on master data management (MDM) to avoid this pitfalls.
Bad data about your customers is a surefire way to slow down your receivables. To cite one all-too-common example, if you send invoices to the wrong address, you most likely won’t know about it until the payment goes well past due.
These basic solutions for disputes and process issues have something in common: workflow management. Yet many companies can’t make improvements. The primary reason is an overreliance on good ol’ email for managing receivables.
The trouble with email is that managing dispute and onboarding processes is manual. Stuff falls through the cracks. Visibility is poor. Reporting is out-of-date. Guess what? Before you know it, your past-due payments are increasing.
Your past-due payments are way too important to rely on email. Think about upgrading your approach using Lockstep. Lockstep increases efficiency and visibility in your collections to put you in control.
In the age of the Internet, your company is due for new solutions that address these new realities. When it comes to payments due, nothing less will do.