Getting your customers to pay

This article was first published in Business Times on 5 June 2020

Getting your customers to pay

By John Bittleston, Terrific Mentors International

Cash flow may be the phrase of the moment but those in the front line call it ‘collecting’. There are good payers, slow payers and nightmares. Good payers pay on time, or even before the due date, so nothing more needs to be said about these fantastic customers. Slow payers are those who pay – in their own time but reliably. Nightmares are those who say “The cheque is in the post” – and don’t mean it. You’ll probably know lots of slow payers and nightmares. What’s causing all this?

Once the payment chain slows at the final consumer – for whatever reason and in whatever way – it grinds almost to a halt throughout its length. If I don’t get my money, I cannot pay you. So obvious, but you would be amazed at the number of people who don’t comprehend the importance of the financial flow.

What encourages customers to pay?

All about Timing

Having the money to do so is a good start. Needing your supplier’s products and service, together with the threat that their own cash flow might push them into bankruptcy is also a sound basis for paying up. If customers need your product / service enough they will pay, and on the terms you have set. Customers who understand the value of suppliers nearly always pay on time – if they possibly can. And timing is what it is all about. That’s why the business lobby wants to get back to work from the lockdown faster than the medical lobby would like. Both are doing their jobs and the fact that the price of cash flow is more people dying is a fact of life not an ideological trap. We accept, willingly if not cheerfully, the consequences of the annual flu epidemic and the widespread problem of illnesses like malaria even though to do so costs many – often young – lives.

The consequences of keeping the cash flow stopped for longer are too horrific to list.

The sources of loans are obvious and don’t need repeating here except to say that banks are much more sensitive to cash flow needs, especially of SMEs, in the present crisis. If a company has to borrow significantly to see it through the present disruption, it needs a decent finance plan to be able to demonstrate stability to its investors and those to whom it owes money and who owe money to it. Allowing all parties involved to see the financial position and how it is to be resolved gives both debtors and creditors confidence that the company knows what it is doing.
The basis of good finance is confidence and this is instilled by sensible public relations.

Finding the right person and establishing good relationships

Collecting money from reluctant payers can be helped by a less technological and more personal approach to the right person. They are not always the senior or financially controlling parties in a firm. I have found it useful to get an older member of my finance department to call up the invoice clerk at the company owing money and establish a telephone relationship with them. Invoice clerks control which invoices are at the top of the pile. If your personable and sympathetic senior can establish this personal relationship, chatting to the invoice clerk and taking an interest in their family, they can ask that the invoice be moved to the top of the list. It usually is, in my experience.

Do not ignore this route to collecting money. A friend made a sizable fortune out of it.

Good relations with those who owe you money consist also of being in touch with them reasonably frequently. Depending on the company and the amount owed I found that personal calls to the top people, CEO, CFO, COO especially, usually yielded good results provided, of course, that the business was able to pay. If your business is small, explaining the importance of the payment to maintaining the key jobs that serve the client is also useful. But don’t sound too desperate or you will worry the client or supplier that you are becoming unviable and a serious risk. This may precipitate a study of alternatives, some of which may turn out to be cheaper or have less demanding terms of business.

Review the Terms & Conditions regularly

Every company should review its terms and conditions of business every six months. These documents are usually drawn up in legal language for good reasons. A simple, plain language, summary, clearly identified as not part of the legal T&C, is helpful to clients. During the Covid-19 crisis it is a good policy to relax payment terms if at all possible. Phased payments are tedious to monitor and police but they can help a client through the tough financial times and win a commitment from them to longer term fidelity. In light of the financial disruptions that are still to come, well-established, phased payments may be useful to establish early. Finance departments are used to routines and once these are established, they tend to stay in place for a long time.

We do not know how the pandemic will play out or whether a usable medication will become available or when. With all these unknowns, companies will try to conserve their cash. Most are reasonable and don’t want to bankrupt the companies that serve them. As mentioned earlier, confidence is at the root of all financial systems. It’s especially necessary today. Try to keep your business on an even keel compared with competitors, suppliers and those in the industry generally. To have everyone see your situation as ‘normal’ is reassuring and can help ride through financial storms that are to come.

Collecting money from those who owe it during a financial crisis is never easy. I have avoided mentioning lawyers’ letters and threatening behavior. In my experience it brings a company to the level of the street lender and sometimes ends up in illegal behavior which benefits nobody. Decent, reasonable, friendly relations have a way of establishing precedents that will be allowed for a long time. Get to know those who owes you money.

Friends deal better than enemies.