Key Accounting Ltd.
Key Accounting Ltd. Thorns, Main Road, Eyam, Hope Valley, Derbyshire. S32 5QW.
Key Accounting Ltd
Call us on 01433 630902
Would you like every single one of your customers to pay you in full, on time, every time?
In their 1999 survey, business finance specialists Alex Lawrie asked UK companies why they paid invoices late. The top ten reasons given by credit controllers were as follows:
23% Waiting for the cheques to be signed
22% Invoice lost
16% Cashflow problems
15% Person dealing with it is unavailable or off sick
6% Cheque is in the post
5% Waiting for the cheque run or for a new cheque book
3% The invoice is being disputed
2% We pay on 60/90 days – not 30 days
2% Missed the payment run
On a lighter note, some of the more bizarre reasons given by credit controllers when refusing to pay included:
Prize draw – One business supplier in the North East holds a monthly prize draw. Every customer who has paid their account on time goes into the hat, and once a month a winner is drawn out and treated to a meal for two at the best restaurant in town. The scheme costs about £1200 a year to run. And not only does it greatly improve cashflow, but it also creates a talking point and makes customers smile.
Big prompt payment discounts – Most prompt payment discounts don’t work because the
In other words, the invoice shows the price as £3000, but also contains a line that deducts the £1000 and reads: “This £1000 prompt payment discount may only be deducted if payment is received at our office no later than...” followed by a date exactly 7 days from the invoice date. As a result the vast majority of customers pay within 7 days. Why not turn your sales discounts into BIG prompt payment discounts in this way?
Increase your prices – Another business we know wrote to all its customers telling them that that it was increasing all of its prices by one ninth (ie 11.11%). But in the same letter it also explained that customers paying within 14 days of the invoice date would be able to deduct 10% from the invoice value. Nobody complained, and most of its customers now pay within 14 days. What is more and here’s the amazing part, customers now actually come in to say “thank you” for being allowed to pay less by paying early!
Of course, when you look at the maths you see how clever this particular strategy is. Initially a £100 item goes up to £111.11. So those who pay after 14 days pay the full £111.11. While those who pay within 14 days pay £111.11 less the £11.11 prompt payment discount – which comes back to the £100 they used to pay before the price rise. So either the business gets paid more or it gets paid more quickly – and either way its owners are happy!
Prompt payment benefits – Discounts are not the only way you can motivate and reward customers for paying you promptly. There are many other benefits that you could reserve only for those who pay on time. For example, you could give them priority when booking service and repair visits, free upgrades to express delivery, or even free delivery, lower minimum order quantities, extra technical support, free helpline, special offers on upgrades, discounts on their next purchase, access to a special section of your website, extended warranty terms, membership of a user group, advance notice of new products or whatever else is most relevant in your case. The key is to make these benefits exclusive to customers who pay on time, because that way many more of your customers will pay on time.
Prompt payment club – Taking the last idea one step further, why not bundle all those exclusive benefits as part of a prompt payment club – which customers are automatically members of if they pay on time. And perhaps give it a name like “Integrity” – since that helps all your customers to see that, when they demonstrate high integrity by paying you on time, they will get special privileges. It will also help them to realise that by paying late they are acting without integrity.
Payment upfront – Another powerful approach is to insist on payment upfront. A useful way of explaining this is to say: “In order to ensure that we have sufficient resources available to continually improve the level of service you receive, our policy is not to ask our good clients to subsidise the handful of clients who abuse credit terms by not paying promptly (and, in some cases, not paying at all!). As a result our standard terms are that payment is due when we start the work.”
Offer finance – Some retailers (car dealers and white goods retailers in particular) offer to arrange finance for their customers. But most others don’t. And that is all the more strange considering that finance allows the business owner to make more sales (because more people will be able to afford to buy), get paid quickly, and perhaps even share in the profits made by the finance company. There are now many specialist finance companies offering many different types of finance options. For example many professionals now offer their clients the opportunity to pay in instalments by signing a simple agreement with a finance company – and because it is what is known as “recourse financing”, there are no processing delays, very low rates of interest, and the finance company guarantees never to turn down an application. Why not explore whether you can arrange something similar for your customers?
What can you do about it? Some unusual ideas that really work....
Using humour – Humour is a great way to defuse difficult situations – including asking
to be paid. Some businesses use funny cartoon postcards and faxes to chase debtors.
Other use amusing letters. For example, the following text (which works best as an
My name is BRIAN and I’m the Bloggins & Co computer.
I’ve got some good news, some really good news and some even better news for you. The good news is that, at the moment, only you and I know that your invoice for £XX (ref: XX, date) is overdue. The really good news is that I am not programmed to tell [insert partner’s name] about it for another seven days.
And the even better news is that I’ve discovered a way for us to sort it out between ourselves without involving him.
All you need to is send me cheque in the next seven days and I will erase the overdue
record from my hard drive. That way no-
And here’s our printable checklist of ways to make sure you get paid.
(Don’t worry if they don’t all apply to you)