Managing receivables is usually one of the top pain areas in business. Customers would look for the slightest excuse to delay payment. On the majority of occasions, it feels as if they do it intentionally. However, that is not always the case.
Let’s try and understand why customers delay payment? The following could be the fathomable reasons:
- Not invoicing promptly and clearly
- Short Quantity or inferior quality of goods or service delivered leading to dissatisfaction and consequent delay in payment
- Not following the proper process at our end as well as at the customer’s end
- Delay in follow up for payment
- Genuine liquidity issue with the customer
- An aggressive working capital policy of the customer, whereby he will pay you only once he receives the payment from his customer
- Influencing future orders in price increase scenario. Payment is delayed trying to negotiate a reduced price for future orders
- Hunting or exploring new suppliers for the same product
- Delaying payment due to inefficiency of the payment processing team
- Continuous non-availability of approving authority at the customer’s end
Well, the list can be endless. Sometimes the reasons provided are genuine, and sometimes they are not. However, the REAL reason behind delayed payments lies in the financial numbers of the customer’s organization.
Many a time, the business model of the customer is such that it gives extended credit to its own customers. In such a situation, the investment in working capital would quickly shoot up, if it has to pay its suppliers before getting paid from the customers.
Another situation could be the high cost of capital at the customer’s end. It would lead to the same outcome. One more case would be market volatility and price instability or even currency fluctuation in case of export-import trade. Customers may want to pay when the market parameters are more favorable to him.
How to overcome such scenarios?
Reading of customer’s financial statements and analyzing them can quickly tell you what the average payment period of the customer is. Also, having an industry understanding of the terms of the trade can help you structure your price to avoid losing the opportunity cost of money. In fact, a smart salesperson would prompt the customers to pay when the terms in the market look favorable for them to pay.
All of this can happen, once the salesperson is savvy enough to know the numbers and use them to his own benefit. At ConTeTra, we have a special program on "Managing Receivables Effectively" for Sales & Marketing professionals. To know more, visit our website www.contetra.com or write to me personally at vishal.thakkar@contetra.com, and I would be happy to support you with all your queries.
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