A worrying trend in credit management has developed over the last 12 months.
Firstly, people are taking longer to pay their accounts.
Secondly, businesses are asking for money more quickly.
It was not that long ago when we would sit down in the last week of the month and pay all of the accounts at the same time since they were all due at the end of the month. Not any more. Some businesses like to be paid on invoice. Superannuation and Business Activity Statements are due on the 28th of the month. Group Tax is due on the 21st of the month. We pay our rent on the first day of the month. We pay Australia Post in Week 3 and similarly for our telephone bill. These companies place a due date on the invoice.
This is a clever way of collecting money because seeing a due date on an invoice will stand out. However, evidence suggests it is not working. If it was working, then there would be a trend for earlier collection. So, what is going wrong? The problem is in the followup.
There is simply not enough followup. Greater technology has meant many credit managers have relied on less reliable means of collecting money.
Firstly, invoices are being emailed. But what happens next? Is another email sent or should another approach be used? What if the email gets left unopened in the inbox is not received at all or worse still, is just deleted?
Secondly, a number of credit managers are using the telephone to collect their money, immediately the account becomes overdue. The problem with that approach is two-fold. Firstly, it is too confronting. It is not necessary to annoy your good customers by calling them when an account is merely one or two days overdue. Secondly, it is a waste of time and valuable human resources. This is what is happening. Too much time is spent chasing the good customers whereas the slow payers are getting neglected because they are not being identified quickly enough.
When I use the telephone to collect money, I will often call someone two or three times per week until I get a promise to pay. I can spend time on this because I have already collected all of my money from my good paying customers without the need to talk to them on the phone.
What is happening is a declining use of the humble letter. Most people will open addressed mail, particularly these days as there is a less of it around.
Here is what I do and it works even better today than before since I have less competition from other suppliers who are probably emailing or telephoning their customers. I have my invoice together with one or two statements as reminders in the hands of my customer. This additional paperwork gives me an advantage over my competitors when it comes to chasing money since I have more written communication and I make it very clear to my customer that the invoice is overdue and we would like prompt payment.
Yes, we still use humble statements. We send less than we used to but we always send statements to customers whose account is overdue. We also do this three times before calling, once at 30 days, another at 45 days and another at 60 days. Of course, we use stickers with gradual increases in severity to highlight the fact that the account is overdue. This approach works even better than before because I now have less competition for my customers’ money.
Quite simply, I believe a declining use of the mail to collect money is the primary reason why accounts are being paid more slowly than in the recent past. It is not because suppliers are being more lenient. The reverse is actually true. Many businesses are asking for their money more quickly. But to get your money collected more quickly, you need good followup. Therein lies the problem.