Why should you understand your customer payment cycle.
Why should you spend the time getting to understand their process? Afterall you raise the invoice so shouldn’t they meet your terms? Understanding your customer’s payment flow is like turning up to a roundabout that you’ve never been to before. It’s got six lanes and all the road markings are worn out on each lane, with cars parked over them and you’re not too sure what you’re doing, which lane you should be in or how to get around the situation. This is what happens to your invoices if you do not understand your customers payment flow.
I recently worked on a one-to-one basis with a video firm, based here in North Manchester. They have a very large client with a UK head office and an invoice processing section in Holland. They approached me for help.
“Rachael, is there anything we can do to get our invoices paid on time by this company.”
I asked what they do now. They said:
“We do the job. We email the invoice to our contact but somewhere between our contact and accounts processing, it seems to get lost. Then, we chase up our contact who says he’s passed it on but accounts processing haven’t received it. Then, we email accounts processing and we go back and forwards with email. Eventually, accounts processing confirm they’ve received it. There’s another delay while the invoice goes back to our contact for him to approve it. His approval then goes back to accounts processing in Holland to put on their system for their approval. Once accounts processing have approved it, it gets on the next payment run and is paid by the UK head office.”
It’s all so complicated and we can’t get our head around how we can help them.
We reviewed the situation:
First – do it the right way
They emailed the invoice only to their contact. We changed that. We emailed the accounts processing department, copying in their contact. This meant they could telephone the accounts payable department, knowing they had directly emailed they and they should have received the invoice.
Taking this step reduced the number of days it took to get paid by 14 days.
Second step – follow up and take action
The next thing we implemented was follow up. When they spoke to accounts payable, they didn’t only check the invoice had been received, they checked whether it had been approved. If it hadn’t been approved, they could pick up the phone to their contact to say:
“Hi. We copied you into an email we sent to accounts payable on this date but you haven’t approved our invoice yet. Is there a problem or something you don’t understand? I know you’re really busy but can you check you have the email?”
“You have? Brilliant. Whilst you have the invoice open in front of you, can you just email back to all to say it’s approved? Thank you.”
By making this phone call, my client took another 14 days off the payment date from his customer.
Once we got into the process of doing that, it became habit to them, we then looked at the final step.
Finally – know who’s making the payment
Next we turned to the UK payment department. You would think my client shouldn’t have to contact the UK payment department. What we did was put a strategy in place. Every week, on a Friday afternoon, they would ring the UK contact in the payment department. They didn’t just ring when there was an invoice outstanding, they called every week, just for a chat.
Why? To build a relationship.
Find out a little bit about them, ask what they’re doing at the weekend and keep the communication going. Over a period of 3-4 weeks, they got to know the person who paid their invoices. When they rang up, the person responsible for paying their invoices would look forward to the chats. By doing this, their invoices are now paid within a couple of days of the due date.
All we did was change three steps.
My client then took it one stage further and when he next went to visit his contact, he asked if the UK payment department was in the building. As it turned out the department was in the same building on the second floor. When he finished his meeting, he went to the second floor, walked into accounts and asked to meet the person he’d been having his Friday conversations with. He went over, introduced himself and she said:
“You’re the bloke who rings me up every week for a chat. I really look forward to our chats and do you know what, I never let anything get in the way of your payments. Oh, and hang on, I wanted to call you anyway. I’m going away in a couple of weeks so I wont be here to do your payments but if you’ve got 5 minutes for a cup of tea, I’ll introduce you to Bernadette. She’s going to be doing the payments while I’m away and it’s so nice to put a face to a name. You weren’t at all what I thought you looked like”.
How amazing did that conversation feel.
This customer, who had been paying them almost 30-45 days late, is now paying within a couple of days of the due date.
All we did is look at the direction and the way they could get through that confusion that is the roundabout you’ve never been to.
If you can spend time to understand how your customer’s payment flow works, you’ll massively benefit yourself in getting your invoices paid on time.
I hope you found that useful.