Rock LaManna10.14.16
Does this sound familiar? We tally up all the costs of a project for a new customer, calculate our markup, add in unexpected fees for fixing a customer file, and charge for a rush delivery. We nervously shave off a few dollars to try to gauge what a customer will pay without complaint. Then we print a bill, drop it in the mail, and cross our fingers.
If we’re trying to improve our odds of getting paid promptly, there’s a lot about that scenario that needs to be fixed.
I’m a process guy. I like to measure things and improve them. If I am working with a client who is consistently seeing a high percentage of past due accounts, I want to know why.
Associations like NACM (National Association of Credit Managers) or your industry trade association can tell you what percentage of your receivables are likely to be over 30 days. Keep in mind, though, that’s a general number. For most label printing companies, there’s plenty of room for internal improvement.
In this day and age, billing should be part of your customer service process. Everything possible should be done on your end to make sure there are no impediments to your customer paying his or her bill.
Now we know there are people who can’t or won’t pay their bills, who intend to defraud you, or who have a financial emergency. We’re not talking about those customers, and hopefully you have a process for collecting from them. What we’re talking about are good-hearted customers who are not paying promptly.
So let’s start with the measurement. Go through your receivables and calculate each percentage of past dues in each column. This is where my clients will say, “Well, we’re running about 7% in the over-30 column, but we know that 3% are good for it.”
That’s not what we’re measuring. We want actual figures in each column, tallied on the same day each month, preferably right after bills go out. Now we’re ready to dive into the eight things you can do to reduce those past due accounts.
1. Be ruthlessly truthful with yourself about your receivables
You cannot hope to improve the situation if you’re not honest about your finances. You need to understand your exposure, the cash flow impact of your receivables, your relationship with your vendors if you cannot pay your bills due to customer non-payment, and the possibility of losing a customer due to a misunderstanding.
Yes, you can lose a customer due to a billing misunderstanding. I know I dread it any time I have to contact my cable supplier or health club about a dispute. Before I pick up the phone I always think, “If this doesn’t go well, I’m cancelling my service.”
Your customers should never feel powerless or deliberately deceived. In my experience, printers do best when they incorporate prompt payment practices into their customer service program. So that brings me to point #2.
2. Be impeccable in your billing practices
This is a process in and of itself. Here are just a few items that can help improve your billing practice:
In many label companies, I see past due accounts from customers who never would have made it through the most minimal credit application process.
A few months ago, I wrote about how to do an online search of a person or a company. If you find no red flags online, then order a credit report and call references according to your best practices.
Some owners think their gut instinct and a handshake is sufficient. Again, I’m a numbers person. Go through your uncollectible accounts from the past three years and tell me how many of those accounts passed the gut check. Control what you can control, and use the tools that have been proven to work.
4. Communicate your payment terms on your contracts and your invoices
Let customers know what to expect. If your terms are net 15 from the date of the invoice, say so. Most people start with the premise of net 30 from the date of receipt, so if your terms are different, make sure it’s well communicated.
My clients tell me that many of their customers will dictate terms, including late fees, and if they want their business, they have to agree. Just remember that everything is negotiable, and there may be other concessions or fees that can offset the burden.
5. Understand what your customers have to do on their end to get an invoice paid
If you are dealing with a large company, you’ll be interacting with an accounts payable department whose main function is to match your invoice with an approval from the appropriate person in their company.
Until that happens, your invoice may as well not exist. In these situations, I recommend you also send a copy of the invoice to the person who approves. Don’t send that copy to the corporate office. After all, it may be in another country! Make arrangements with your contact person to email it or fax it to their home office. You want that copy to go wherever they are, so their approval can be expedited. Include everything on their copy they will need, including due date, terms and conditions.
For their accounting department, include any documentation that proves the invoice is valid, including a unique invoice number, all purchase orders, revised PO’s on change orders, signed order forms or contracts, etc. Include all possible ways to contact you if there is a question.
Understand that accounting departments in large companies may have high turnover, so you always want to be sure you’re giving them everything they need. You don’t want your invoice to land on the “deal with it later” pile.
Let’s talk more about the “deal with it later” pile. Even for a smaller customer who has a bookkeeper or spouse handling the payments, there are common issues that will lead to a delay in payment.
I talked about impeccable internal processes above, but that doesn’t mean there aren’t external impediments on your customer’s side that can also slow down payment. Remember, bills that are a hassle will get postponed or ignored, which brings us to point #6.
6. Try to create a hassle-free environment for your customer to pay their bills
Can customers leave a message, text you, or email you 24/7 if they have an issue? I know nothing gets me more steamed than calling about a bill at the end of the day and getting a recording that says, “Please call back during our normal operating hours.” Think about these other bill paying conveniences for customers:
7. Don’t use the collections process as a net to catch past due accounts that could have been handled with better internal processes
You really want to avoid, if possible, reaching the point where an outside agency has to intensify the collections process. The reason is that the Fair Debt Collection Practices Act protects consumers from harassment. Although these laws don’t apply between businesses, at least in the US, consumers are starting to understand that abusive or unfair behavior by professional collections companies is illegal. You could find it very hard to proceed under the law if customers believe they don’t have to interact with you.
Be sure you understand all the laws that apply to you and your customers, especially if they operate in another state or country. You can read the complete text of the Fair Debt Collection Practices Act on the Federal Trade Commission (FTC) website: https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text
8. Make your customer an ally in the bill paying process
Have you ever had a customer say, “I had a hard time financially this month, but I didn’t want to mess you up. I put your invoice on the top of the stack and made sure you got paid.”
That’s not a fairy tale; it happens. In everything you do with your customer, in your service and relationship and friendly associations, remember that you’re in business to not go out of business. Even the most philanthropic company needs to cover costs and then some. If we can stand shoulder to shoulder with our customers and make sure we are looking out for each other, we all benefit.
As you look at your invoicing process and the progress required to improve your receivables, keep measuring, keep setting the bar high, and keep involving your employees in continuous improvement.
Finally, don’t be afraid to ask customers how you can make their bill paying process easier. Their feedback is invaluable.
Improving your past due accounts can be done with diligence, attention and a good methodology. If you start today and make a promise to revisit this topic every quarter, you will be amazed by the changes in your bottom line.
NOTE: This is not legal advice. I recommend your attorney review your policies. Terms will affect cash flow!
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. Rock can be reached by email at rock@rocklamanna.com.
If we’re trying to improve our odds of getting paid promptly, there’s a lot about that scenario that needs to be fixed.
I’m a process guy. I like to measure things and improve them. If I am working with a client who is consistently seeing a high percentage of past due accounts, I want to know why.
Associations like NACM (National Association of Credit Managers) or your industry trade association can tell you what percentage of your receivables are likely to be over 30 days. Keep in mind, though, that’s a general number. For most label printing companies, there’s plenty of room for internal improvement.
In this day and age, billing should be part of your customer service process. Everything possible should be done on your end to make sure there are no impediments to your customer paying his or her bill.
Now we know there are people who can’t or won’t pay their bills, who intend to defraud you, or who have a financial emergency. We’re not talking about those customers, and hopefully you have a process for collecting from them. What we’re talking about are good-hearted customers who are not paying promptly.
So let’s start with the measurement. Go through your receivables and calculate each percentage of past dues in each column. This is where my clients will say, “Well, we’re running about 7% in the over-30 column, but we know that 3% are good for it.”
That’s not what we’re measuring. We want actual figures in each column, tallied on the same day each month, preferably right after bills go out. Now we’re ready to dive into the eight things you can do to reduce those past due accounts.
1. Be ruthlessly truthful with yourself about your receivables
You cannot hope to improve the situation if you’re not honest about your finances. You need to understand your exposure, the cash flow impact of your receivables, your relationship with your vendors if you cannot pay your bills due to customer non-payment, and the possibility of losing a customer due to a misunderstanding.
Yes, you can lose a customer due to a billing misunderstanding. I know I dread it any time I have to contact my cable supplier or health club about a dispute. Before I pick up the phone I always think, “If this doesn’t go well, I’m cancelling my service.”
Your customers should never feel powerless or deliberately deceived. In my experience, printers do best when they incorporate prompt payment practices into their customer service program. So that brings me to point #2.
2. Be impeccable in your billing practices
This is a process in and of itself. Here are just a few items that can help improve your billing practice:
- The amounts billed should be correct.
- Discounts must be applied.
- Special situations must be tracked.
- Checks should be deposited promptly.
- Payments must be applied correctly.
- Billing should be done as soon as possible.
- Invoices must be clear and easy to understand.
- Unexpected charges must be documented and explained.
In many label companies, I see past due accounts from customers who never would have made it through the most minimal credit application process.
A few months ago, I wrote about how to do an online search of a person or a company. If you find no red flags online, then order a credit report and call references according to your best practices.
Some owners think their gut instinct and a handshake is sufficient. Again, I’m a numbers person. Go through your uncollectible accounts from the past three years and tell me how many of those accounts passed the gut check. Control what you can control, and use the tools that have been proven to work.
4. Communicate your payment terms on your contracts and your invoices
Let customers know what to expect. If your terms are net 15 from the date of the invoice, say so. Most people start with the premise of net 30 from the date of receipt, so if your terms are different, make sure it’s well communicated.
My clients tell me that many of their customers will dictate terms, including late fees, and if they want their business, they have to agree. Just remember that everything is negotiable, and there may be other concessions or fees that can offset the burden.
5. Understand what your customers have to do on their end to get an invoice paid
If you are dealing with a large company, you’ll be interacting with an accounts payable department whose main function is to match your invoice with an approval from the appropriate person in their company.
Until that happens, your invoice may as well not exist. In these situations, I recommend you also send a copy of the invoice to the person who approves. Don’t send that copy to the corporate office. After all, it may be in another country! Make arrangements with your contact person to email it or fax it to their home office. You want that copy to go wherever they are, so their approval can be expedited. Include everything on their copy they will need, including due date, terms and conditions.
For their accounting department, include any documentation that proves the invoice is valid, including a unique invoice number, all purchase orders, revised PO’s on change orders, signed order forms or contracts, etc. Include all possible ways to contact you if there is a question.
Understand that accounting departments in large companies may have high turnover, so you always want to be sure you’re giving them everything they need. You don’t want your invoice to land on the “deal with it later” pile.
Let’s talk more about the “deal with it later” pile. Even for a smaller customer who has a bookkeeper or spouse handling the payments, there are common issues that will lead to a delay in payment.
I talked about impeccable internal processes above, but that doesn’t mean there aren’t external impediments on your customer’s side that can also slow down payment. Remember, bills that are a hassle will get postponed or ignored, which brings us to point #6.
6. Try to create a hassle-free environment for your customer to pay their bills
Can customers leave a message, text you, or email you 24/7 if they have an issue? I know nothing gets me more steamed than calling about a bill at the end of the day and getting a recording that says, “Please call back during our normal operating hours.” Think about these other bill paying conveniences for customers:
- •Are you available online, by email or by phone at the times when your customers are dealing with their bills?
- What options can customers use? Check, credit card, bank wire, EFT?
- A transfer from their checking account? PayPal?
- Can they set up a secure recurring payment?
- Can they log in and view their invoice online and view their previous payments?
- What kinds of discounts apply?
- Do you have a “Frequently Asked Questions” section on your website that addresses billing questions?
7. Don’t use the collections process as a net to catch past due accounts that could have been handled with better internal processes
You really want to avoid, if possible, reaching the point where an outside agency has to intensify the collections process. The reason is that the Fair Debt Collection Practices Act protects consumers from harassment. Although these laws don’t apply between businesses, at least in the US, consumers are starting to understand that abusive or unfair behavior by professional collections companies is illegal. You could find it very hard to proceed under the law if customers believe they don’t have to interact with you.
Be sure you understand all the laws that apply to you and your customers, especially if they operate in another state or country. You can read the complete text of the Fair Debt Collection Practices Act on the Federal Trade Commission (FTC) website: https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text
8. Make your customer an ally in the bill paying process
Have you ever had a customer say, “I had a hard time financially this month, but I didn’t want to mess you up. I put your invoice on the top of the stack and made sure you got paid.”
That’s not a fairy tale; it happens. In everything you do with your customer, in your service and relationship and friendly associations, remember that you’re in business to not go out of business. Even the most philanthropic company needs to cover costs and then some. If we can stand shoulder to shoulder with our customers and make sure we are looking out for each other, we all benefit.
As you look at your invoicing process and the progress required to improve your receivables, keep measuring, keep setting the bar high, and keep involving your employees in continuous improvement.
Finally, don’t be afraid to ask customers how you can make their bill paying process easier. Their feedback is invaluable.
Improving your past due accounts can be done with diligence, attention and a good methodology. If you start today and make a promise to revisit this topic every quarter, you will be amazed by the changes in your bottom line.
NOTE: This is not legal advice. I recommend your attorney review your policies. Terms will affect cash flow!
Rock LaManna, President and CEO of LaManna Alliance, helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. Rock can be reached by email at rock@rocklamanna.com.