Cobwebby books

It’s time for your credit control to catch up: Part 5, clearing out the cobwebs

6th Sep 2017
Share this content

In the penultimate part of his six-part series on modern credit control, Brad Ewin from Chaser looks at how to deal with bad-paying customers.

You need standardised processes for catching problem invoices, solving them ASAP, and adapting to prevent the problem from reoccurring. But not only that, you need to be relaying bad payment to the rest of the business.

Did you know that UK SMEs alone spent a collective £10.8bn in attempts to recover late payments in 2014? With industry authorities constantly reporting that the late payment problem “is only getting worse”, effective credit control needs to be at the top of the agenda for every finance team in 2017.

Last week we broke down the key elements that make up effective credit control meetings. Your credit control meetings are the vehicle in which you deal with bad-paying customers. It’s imperative that you get them running at peak performance.

But what exactly is a bad-paying customer?

It’s an easy but dangerous thought to have in thinking this is a silly question. Often, “bad-paying customers” are defined by unconscious, emotional decisions, potentially based on outlying data points. This isn’t smart. Without a logical, defined approach to how you judge a bad-paying customer from a good one, you risk employing poor payment-chasing practices and weak customer relationship management. These will stifle your cash flow.

The major defining factors of what kind of customer you’re dealing with are how often they pay their invoices on time, and their creditworthiness. The most common “bad-payer” archetype emerging from these two factors is the PITA customer - the pain in the a**e who, although they usually pay late, always eventually pay.

How to catch problem invoices

To catch problem invoices from PITA customers, you should be tracking DvD: Days vs. Due Date. This is a metric very similar to debtor days but accounts for your payment terms. After all, debtor days of 60 is great for a business selling on 90-day payment terms, but terrible for a business on 30-day terms.

To calculate DvD for a particular PITA customer, take a recent period of time (we recommend six or 12 months) and look at all their invoices in that period. Average the days past the due date that payment was received. This is the customer’s DvD.

The flag to look for with problem invoices is a DvD repeatedly in the double digits. Keep in mind this number may vary from business to business and industry to industry. It’s up to you to decide whether a DvD of 10+ is enough to warrant action, or if you should be looking in the 20-30 range.

Adapt to survive

Once you’ve got the process in place to flag problem invoices, there are three things you can do to treat them and work towards preventing their reoccurrence.

Firstly, start sending out ‘before due’ chasers even earlier. Normally, we’d recommend sending a ‘before due’ chaser within seven days of the due date, however considering we’re dealing with PITA customers here, within 14 days is acceptable (unless you have 14-day or less payment terms).

Secondly, ensure your post-due-date chasers are sent on a weekly basis. This keeps on top of the PITA customer as frequently as possible without it coming across as harassment.

Finally, escalate your chasing. And do it correctly. With PITA customers, wait until at least two weeks after the due date before escalating the sender of your chasers to someone more senior in your organisation. If this doesn’t yield results, wait at least one more week before escalating the receiver of the chaser to someone more senior in your customer’s organisation.

Going one step further

With these three things in place, in time you’ll see your cash flow boost. But you can, and should, do more. It’s not enough for the finance team to identify bad-paying customers; it’s their responsibility to relay the information to the rest of the business.

Two parties it’s imperative that are informed are the senior finance management and senior sales management. While the former is already handled during effective credit control meetings, the latter is a communication channel you may have to establish in your organisation. The benefits are significant - a synergy between finance and sales can prevent cash-struggling customers turning further sales into future bad debts, or provide leverage via new sales contracts being contingent on outstanding invoices being paid.

In some extreme cases, however, you can have customers who continue to be a PITA no matter what you do. In these cases, it can be worth broaching the conversation with heads of finance and sales - is this customer really worth the revenue they bring in? Sometimes clearing out the cobwebs just isn’t enough. It might be time to squash the spider.


Next week is the series finale with Part 6: ABT - Always Be Thanking. Here we cover an oft underrated, but absolutely crucial, element of effective credit control. That is, the enormous positive impact that consistent ‘Thanks for Paying’ emails can have on customer relationships and your cash flow.

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.