invoicing

Managing Customer Invoicing Payment Behaviour: The good, the bad and the ugly

Effective invoicing & cash flow management is fundamental to the success of any business, and arguably the more important half of this is the money you have coming in. Without receiving the money you are due in a timely manner, it becomes impossible for you to pay your own bills, debts, and employees, and your whole operation can fall apart very quickly. Even if you manage to stay afloat by using cash reserves or loans, the impact this has on your output, interest, and credit rating can be very damaging to your business.

Having clear invoice and payment policies and implementing them consistently is crucial to ensuring you maintain as much control over your cash flow as possible. But no matter how clear and consistent you may be, you will always encounter customers who have varying degrees of respect for your policies. Below, we examine the good, the bad, and the ugly customers you are likely to encounter through your invoicing process, and advise you on how to approach each one.

If you need expert support with your invoicing, contact Shelbourne Accountants today.


The Good

“The Good” customers are those who pay their invoices on time, early, or instantly. Needless to say, these are the most desirable customers to have. Having a reliable idea of how much money you can expect to get in and when makes it much easier to manage your cash flow and ensure that you can pay your own expenses on time. This is especially true if “The Good” is a regular customer, as opposed to one who engages you sporadically or as a once off.

Your top priority with “The Good” customers is to maintain a positive working relationship. There are many aspects to this, from the basics of being friendly and polite, to the more advanced, such as anticipating when they may be interested in a new product or service, or quickly and faithfully resolving any disputes that may arise. With customers like these, even down selling, where you suggest that a cheaper good could help them achieve the same results, can be a good idea, as it establishes a trust that could allay any fears they have about placing a much larger order in the future.

Being considered a part of “The Good” group is a result of a pattern of behaviour, where someone consistently pays on time. Of course, all businesses have their ups and downs, so if one payment is late after many months of on-time payments, it is advisable that you show them some extra leeway, and consider waiving any late fees you may normally charge.

The Bad

As you are no doubt well aware, not everyone you do business with will take it as seriously as you would like. Whether it’s because of unprofessional behaviour or a lack of attention to detail, you will always encounter people who are difficult to work with. In terms of invoicing, “The Bad” are not the worst group, but they are far from perfect, and they can make your job a lot more difficult without really trying, which is often the case.

“The Bad” are probably best described as people who have been hired to pave the road to hell: they have good intentions, but they consistently drop the ball. Usually these are people who mean to pay you, but frequently forget. They are often unresponsive to your correspondence and can be hard to get a hold of, but will ultimately cough up when asked. Still, this can be incredibly disruptive to your cash flow, as you will have a general idea of when you will be paid, but cannot rely upon it.

The best way to deal with “The Bad” customers is to be firm but fair. You want to try and maintain as positive a relationship as possible with these people, but you ideally want the inconsistency to come to an end. If the customer’s order is a recurring one, setting up a direct debit could be a simple solution. If not, you need to make the process of paying as easy for them as possible, as it will increase the likelihood that they do. This means sending out your invoices as soon as possible, providing clear payment policy at the point of purchase, and sending out email reminders. Ideally, these should be sent a few days before payment is due, on the day itself, and a few days after, and if possible, the email should include a link to an online payment portal. If these emails go unacknowledged, they should be followed by a phone call.

If you have clearly indicated in your payment policy that late payments will incur a penalty fee, don’t be afraid to use that as leverage. It is worth considering waiving the first fee, as this will leave the customer with a positive impression rather than a negative one, and gives you firmer ground to stand on if payments are late in future. You could also offer a discount for early payment, but this would need to be available to all customers, and you would need to consider the cost of doing so.

The Ugly

Lastly, we have “The Ugly” customers. These are the people who regularly pay late, are deliberately evasive when you try to get in touch with them, and frequently dispute the amount on their invoices or the quality of the good or service provided. While it is important to look at the trend of your customer’s behaviour, you can usually identify pretty early on if someone is a member of “The Ugly”.

Many of the ways to deal with these customers are the same as dealing with “The Bad” customers: issuing invoices as soon as possible, sending out reminders, and following up with a phone call. With “The Ugly” customers, it is important to be firm when charging late fees, as failure to do so will only give them less of an incentive to pay on time. And while you don’t want to get aggressive, you need to realise that if you don’t chase these people relentlessly, you may never see your money.

In addition to those techniques, you should also try to create as much of a paper trail as possible, as this will help you resolve disputes when they arise. Immediately provide them with a clear summary of their order, and ask them to alert you of any mistakes within a certain timeframe. If none of this works, you can always sell the debt to a collection agency, but only if you are prepared to lose the customer.

Not all customers are created equal, and unfortunately, the good, the bad, and the ugly are all creatures that naturally inhabit the business world, and it is inevitable that you will continue to encounter them all. Identifying who belongs to what group and learning how to deal with each one are skills you will hone throughout the entirety of your career, but the advice laid out above should help you to get off to a good start.


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If you need expert support with your invoicing, contact Shelbourne Accountants today.