Payments from customers - Dealing with responses and excuses
Monday, 09th May 2022
As credit controllers and credit managers, we have all experienced that potentially daunting experience of calling a customer to request payment only to be told you won’t be getting paid! How you deal with these situations often defines how you develop as a successful collector.
Over the years, when I was setting up credit control teams or recruiting for vacancies as and when they arose, I often posed the question to inexperienced interviewees “What would you do if a customer simply informed you that he could not pay your invoices?” Occasionally people were stumped but, generally, there were some fantastic responses ranging from “I would refer the matter to my line manager for assistance” (very sensible) to a whole array of suggestions for ways of finding out further information in order to determine the best way of dealing with the situation.
This is really the crux of it; establishing whether your customer has a real reason for not paying you or whether they are just offering an excuse. It is important to understand the difference because a reason for non-payment suggests there may be something outside of the customer’s control which is preventing payment being made whereas an “excuse” implies there could be an element of untruth in what the customer is saying to you. It is, of course, one of the golden rules that you must never accuse the customer of lying.
Anyway, our aim is to first of all find out if the reason is valid or not and then we can decide how to work round it.
A disagreement or misunderstanding over payment terms is often a genuine reason for payment not being made when you are expecting. However, this can be avoided if you ensure your customer signs the sales contract or credit agreement, agreeing to your credit terms, before you supply your goods or service. It is also good practice to telephone each new customer as soon as the account has been opened to introduce yourself and, at the same time, politely confirm they know what your payment terms are.
Queries are another reason why customers feel they are entitled to delay payment. This is why the way we deal with these is crucial. We need to investigate, resolve, apologise (if the query is valid) and issue a credit note and the speed at which we action this must be kept to a minimum. Some customers try to delay payment of every invoice on a statement of account until the one single disputed invoice is resolved. In these instances we should respectfully point out and insist that payment of the invoices not in dispute should be paid without delay.
The other main issue with queries is that we need to maintain an accurate log of the type and value of the query, whilst checking for re-occurrences of the same issue. It is also imperative that we keep a record of who each query has been referred to (it is rare for credit control to resolve any query without involving another department) and to look for patterns or trends. To help reduce queries, rather than just investigating them and issuing a credit note, each query should be analysed to see if there is a fundamental root cause which needs to be corrected i.e. wrong price loaded on to the system
I expect we have all been faced with a response from a customer, when chasing payment, to the effect that their payment terms to suppliers are ‘XX’ days. Although I do not consider this to be an acceptable reason and it is not outside of the customer’s control, it, nevertheless, needs to be addressed immediately. You should refer the customer back to the signed agreement and explain that your terms supersede those of the supplier. It might be that you have to escalate the matter to a higher level.
The other main factor which will prevent your customer paying you on time (or at all) is if they are experiencing cash flow problems. When the customer informs you of this it is important you find out as much as possible as to the causes, whether it is likely to be a short-term problem and what the current owners or directors are doing about the situation. Do not just accept at face value what is being said; you are entitled to ask questions, while remaining empathetic, as, after all, you must find out what the likelihood is of you receiving any payments against the debt.
If it is likely to be a short-term problem then, from my experience, you may find it easier to agree a payment plan over three or four months to pay off the arrears and bring the account back to terms. If the customer is insolvent and the signs are they will be going out of business then you will need to do all you can to protect your debt exposure (i.e. immediate cessation of supplies, applying retention of title). You should try to find out who is dealing with the affairs of the company and then contact them as soon as possible.
All of the above fall into the category of ‘reasons’ for slow payment or non-payment and it is very important you put in processes to prevent these arising, if possible. Now we shall look at some of the typical ‘excuses’ for payment not being received.
If a customer says that payment has already been made or that a “cheque is in the post” you should press for more information as to the date, reference, cheque number and so on. If the customer is telling the truth then they will be happy to provide all this information; if not, then they will know they have been found out and you should be able to press for a commitment and advise them of the consequences of not making the payment.
Another common excuse is that “there is no-one here to authorise payment” or “to sign a cheque”. Whilst that may be true at the very time you called you should consider that this situation would not be allowed to continue indefinitely and that authority for signing off payments (as well as other managerial decisions) may well have been delegated to someone else. Therefore, you should either enquire as to when the person ‘with the cheque’ book will be available or find out who is in charge during their absence. Remember that the company would always have someone available in the case of emergencies arising and you should aim to speak with them.
As well as requests for copy invoices (these should be emailed across to the customer the same day they are requested), another excuse regularly heard is that “We cannot pay your invoices as we have not been paid by our own customers”. Again, politely, but firmly, you must re-iterate that you did not provide your product or services on a ‘pay when paid’ basis and, therefore, this is not a valid reason for withholding payment.
The above excuses are merely a small selection of the most common ones I have heard. Over the years, I have heard many varied excuses; some have been valid (and, in some cases, heart-rending), some have been humorous, and some have been quite rude and unprintable!) However, from an early stage, I have always found it very useful for credit control teams to note all the excuses they have, especially the ‘new’ ones. Then towards the end of the regular credit control team meeting, we asked the credit controllers to share the excuse and, together, we came up with a professional (not sarcastic) response which could be used for each one.
This was good fun but, overall, the discussions proved very useful for the team. We built and maintained a ‘bank’ of excuses and appropriate responses and in this way, the team became very disciplined in not simply accepting an excuse at face value. Instead, they developed skills in engaging with the customer to understand the true position and to take action to secure payment, prevent the same excuse being used again by the same customer and, in some cases, were even able to help the customer through a difficult period.