Last time we were privileged to have Edwina Taylor, an expert in the field of credit risk, pass on some excellent advice on using credit reports, setting credit terms and credit control in general. I hope you found it useful.
We have two more lessons to go, as we look at how we can get cash in quicker. This time I want to look at two administrative issues that can trip you up, and next time I'll outline roughly what I see as a good credit control procedure. Then after that... well, I haven't thought that far ahead yet!
There is a kind of logic to the way I've been approaching this. Up to now we have majored on the issues to consider before you get to invoicing the customer/client - forecasting, credit limits, knowing your customer. This time we'll look at invoicing issues. Finally, we look at procedures once invoices have gone out.
What are the invoicing issues that can delay payments? Sometimes administrative issues can delay customers paying you. I have seen both sides of this - in other words, as both a supplier trying to get paid, and as a customer being asked to pay. And sometimes the administrative issues are genuine, and sometimes they are being used as delaying tactics. And sometimes it starts off with a genuine issue, which the customer's accounts team capitalises on to keep hold of your cash a bit longer. (Yes, it's your cash, not theirs, if the invoice is overdue. And seeing it as your cash will help you have the right mindset when chasing for payment.)
I just want to give two examples of where administrative sloppiness can cause delays in payments (actually, it may be better to call it "lack of attention to detail" or weak procedures, since "sloppiness" implies a criticism. Sloppiness is only a fair term where you know you should do something and you don't do it, or you can't be bothered, or don't see the point).
First, if the details on the invoice are incorrect then the customer is within their rights to query it and ask for a replacement invoice. An invoice is a legal document, with certain essential elements. If a customer may feel they will run into problems with tax (corporate or indirect/VAT) if they book/pay an invoice that is not legally correct. So they are entitled to an invoice that contains the right elements - whether that be a VAT registration number, the correct company name or specific wording in the description.
Some customers will be good at coming to you immediately to point the problems out and sort things out immediately. A lot of customers won't be so forthcoming, and won't tell you until you start chasing for payment. So make sure you know what an acceptable invoice would look like to the customer, and set your procedures so that you and your staff produce them like that.
Second, make sure you send the invoice to the correct person or department. Obviously this is particularly relevant to bigger companies, where the person you deliver the product or service to may not be one who processes the invoice for payment. If you don't send the invoice to the right person, address, department, email address (or you don't send it in the right format - paper or electronic) then, stating the obvious, the customer won't pay you because the right people won't know to pay you! And you potentially won't find out you made an error until you find they have not paid by the due date.
Make it a priority to make a relationship with a contact within the customer's finance and/or accounts payable team. People will normally go the extra mile for people they know and have built up a good relationship with, and they will normally be more honest too.
To sum up, if you have got all the invoice details right and are talking to the right person, then it will make chasing for payment so much easier.
And it's the chasing for payment procedures that we will come to next time.
Please let me know if any of these issues affect you, and if you have any tips of your own for getting round administrative issues with invoices.
All the best!
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