I was once asked what I disliked in business. There are a few things but my pet hate is when customers don’t pay their bills on time. It’s even worse when clear payment expectations are agreed up-front, the goods or service are delivered in line with the agreement made and then no payment is received. All that follows is a bunch of excuses. It’s a quick way to erode trust in a business relationship.
Too many businesses, desperate to win a client, will gloss over how and when they expect to get paid, crossing their fingers that they are dealing with people they can trust. Many times they end up dealing with a problem they could have avoided if they were clearer and more up-front with their expectations.
A prominent company that I was advising a few years ago suffered from a weak cash flow which was mainly due to a long-dated debtor book. Their sales were growing strongly every year but they had weak credit controls and they needed to fix this quickly. They came up with an approach that was straight-forward and honest which they communicated to their clients. With their permission I have reproduced an excerpt below:
“We try to keep our prices as low as possible at all times. We are not a bank so this only works if we are paid on time. Our standard payment terms are 14 days from invoice. If you would like to pay cash up front then we will reduce the price by 2.5%. If you would prefer to pay in 30 days that is fine too but your price will be increased by 2.5%. We don’t offer terms any longer than that.
You can choose which of these payment terms suit you best.
To stress how important it is for us to be paid on time we will call you the day after a payment is due if you haven’t paid it. We will request immediate payment and remind you what we agreed today. We would prefer to be up-front about this to avoid any hard feelings later on.
We assume this is all acceptable but we’re happy to talk through any specific matters you might have. We are very excited to be working with you and can’t wait to get started.”
I recently spoke to the owner of the business and he told me that sales, cash flow and customer satisfaction has never been better. He said it took a few months to clean up his debtors and they had to shed some clients along the way who refused to pay on time but in his words “we’re better off working with companies that live up to their promises.” He’s absolutely right.
OK, so I don’t like it when customers don’t pay their bills on time. What about you – what do you dislike in business?