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How to tackle late payments

18th May 2016
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It will come as no surprise to those in the profession that at Accountex one of the major issues on the minds of small business owners – or those responsible for their finances – was late payments.

Recent ACI Worldwide research shows that 33% of SMEs have experienced difficulties meeting their own financial obligations due to late payments, while 13% don’t even chase bad debt – preferring to move on and hope the payments eventually come in.

Presenting at Accountex business consultant Peter Dilger, representing credit control software firm Draycir, addressed this thorny issue with a session entitled ‘the secret to getting paid faster’.

Factors behind late payment

According to Dilger, companies often fail to be paid on time because of the following three factors:

  1. They’re reactive instead of proactive;
  2. They start the process late;
  3. They work ineffectively.

In his presentation Dilger urged company owners or finance departments to be more proactive in their credit control dealings. “When do you start sending invoices?” he asked. “When do you start chasing? If you’re waiting until the customer is 30, 40 or 50 days overdue before you start to chase them, that’s too late.

“Ultimately you’re in control of this. You might not want to lose business, but a customer who doesn’t pay is not a customer.”

Dilger said that the average credit controller spends about 80% of their day doing administration, and 20% of their day doing what they should be doing – chasing money.

“It’s strange that in an age of software very few people actually do their credit control anything other than manually. This isn’t working effectively – look at who you’re chasing, why you’re chasing, how you’re chasing and swap those 80-20 ratios back the other way”.

Rulers and highlighters

Dilger asked his audience: “how many of you use a manual accounting system?”, to which no hands were raised. However, when he asked ‘how many of you use a manual credit control system?’ about two thirds of the hands went up.

“Most of you get a printout, a ruler and a highlighter and that’s the way you do it”, he said. “Some companies are more sophisticated - they use two highlighters.”

Getting paid

Dilger believes changing companies’ mentality can go a long way to alleviating some of the late payment pressure. “There’s no concept in credit control or credit management of win-win”, said Dilger. “I should be happy to pay you and receive a good service.”

In terms of starting the process late, Dilger recommended having a system where you can set it for day 20, for example, and the system contacts them to ask if there are any issues.

“Make sure you ask the important questions when you do contact your customers”, said Dilger. “Did we deliver? Was the order complete? Are there any disputes? Is there an issue? If there’s no issue there’s no reason why you shouldn’t be paying basically.

For Dilger, disputes are no reason for delaying payment. “Disputes come in – it’s inevitable – and you need a system to deal with them – have a prompt which helps people overcome objections.

“One objection is ‘they arrived damaged’. When you ask how many were damaged out of 150 they say two, but because there’s two damaged they won’t pay for the other 148”, Dilger continued. “That needs to change.”

Theory and reality

All this sounds like an excellent idea in theory, but it leads to the inevitable question – if it is so simple why do late payments continue to cause companies so much grief?

Speaking to AccountingWEB after his presentation, Dilger said that companies often don’t realise there’s an option.

“There’s inbuilt inertia or resistance to change, and they don’t understand the benefits”, he said. “Many credit controllers do a bad debtors report and it starts 30, 60, 120 days after due date. Why? Because that’s the way it’s always been done”.

Dilger also believes that credit controllers feel their jobs are at risk; that they’ll be replaced by automation. “Our answer at Draycir is ‘no it won’t’”, said Dilger. “With the system you can focus on being productive…

Sage tie-up

At Accountex Draycir announced a major new tie-up with Sage, where they will produced a customised, express version of their Credit Hound tool for Sage 50 on a subscription basis.

“For us it’s a recognition from the biggest player in the market that our software functions”, said Dilger. “This is our first foray into subscription. We’ve done a trial, which produced reasonable levels of business so this is another step forward.”

Replies (2)

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Paul Layte
By Paul Layte FCA
18th May 2016 23:12

Blimey! Are we serious about this? This has been around for a while with other cloud solutions and add ons. Yes I mean Xero and Chaser to those guessing. Better late than never I guess so welcome to the party.....

Thanks (0)
By david tutu
05th Jul 2016 14:50

Tom you have it right if credit controllers exercised more need to know status of their sales and documents early in time then the companies would definetely increase their sales revenue

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