Accounts Receivable Solutions: Your Customers are Having Cash Flow Problems- But You Should Still Be Getting Paid!

There are plenty of reasons why your customers are not paying you on time, and many of them delay payment because they are experiencing cash flow problems. If your customers are struggling with cash flow and you are afraid this will delay payment, there are several ways that you can address this issue to improve the likelihood that you get paid without harming your relationship. Below are three suggestions for getting payment from customers that simply don’t have the money.

1. Penalties/Discounts

Some companies offer penalties for late payments while others offer small discounts for early payments. These strategies may make sense for your business but they often provide too little value and can incent the wrong behavior. Further, what percentage of your customers will actually agree to pay the penalty? Many businesses – especially larger businesses – will simply stop paying you until you waive the late payment penalty. The penalty therefore becomes a barrier to getting paid as opposed to an incentive to pay on time.

Further, what are you saying to your customers if you penalize them for paying late? On one hand, you’re saying that NET30 means NET30, but on the other hand you’re telling them that you’re inflexible and that you view your relationship in terms of money, not value.

Payment terms in many industries are very rigid. For example food distributors tend to offer very short credit terms (typically NET10 or less) compared to distributors of non-perishable products. In some industries, NET10 means Net10 – period.

However, some industries are much less rigid, and credit terms are provided as a guideline and not as a rule for payment. We see this in some segments of the construction and medical industries where a business expects to get paid in 30 days, but they are perfectly happy receiving payment in 60 days due to a wide variety of reasons.

Instead of offering the discount for an early payment – why not offer a discount for a pre-payment instead? This has a lot of value to you as pre-payment will eliminate much of the cost associated with credit and collections justifying the small up-front discount. It’s a win-win for both you and the customer.

2.Credit Cards

You may not want to accept a credit card payment because of the high interest rates that erode your margin but in some cases you may be better off to accept a credit card payment than to wait too long to collect the cash, and the customer files bankruptcy leaving you with nothing but a big bad debt write-off.  It’s not your responsibility to finance your customers. Credit cards give you the opportunity to allow someone else to assume that risk so you can focus on customers that can afford to pay for the products and services you provide.

3.Payment Plans

If your customer is simply experiencing a short-term cash flow problem you may want to setup a payment plan. Ask for as much as you can get up-front, and figure out a payment plan that meets both your needs and their needs alike. This can go a long way toward building customer loyalty.

A few years ago one of our automotive customers was hit hard with the downturn in the economy and the automotive industry crash that almost killed several of the major car manufacturers. Our customer did 90% of their business with a single automotive manufacturer and the bulk of their sales were for products used on large SUVs.

Not only did the economy and the automotive industry tank but gas prices soared their highest levels in history, and demand for SUVs fell through the floor, leaving our customer with major cash flow problems.

We worked with this customer with some very creative credit terms and payment plans to get them through these tough times. We provided discounts on services when we had available resources and they had the option to wait to implement new systems. It all worked out in the end as the automotive industry and the economy recovered, and they are now back to full strength and one of our most loyal customers.

Not all customers are bad customers – even if they don’t pay you on time. Try the above accounts receivable solutions, understand your customers, and treat the relationship the same as you would a good friend and things will work out in the end. And if for some reason they don’t, at least you’ve done the right thing, and you will surely gain a great reputation in the industry for being a quality business that truly cares about your customers.

 accounts receivable solutions

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