Companies are likely to see more customers stretch payments in 2024. Don’t be surprised if a steady client ghosts you either.
Reason: Bankruptcy filings by individuals and businesses increased by more than 18% in 2023. And Chapter 11 reorganization filings surged by 72% last year. A frightening number of businesses are just barely getting by but may not be exhibiting the warning signs. Yet.
Billing and accounts receivable professionals need to be on alert for the most common late payer tactics to make sure their organizations get paid. A/R and credit and collections experts shared some of the proactive steps they’re taking to reduce late payments on a recent Extra Credit podcast sponsored by the National Association of Credit Management.
1. Make time for the personal touch
Electronic communication and automation are great tools for maximizing that payments come in and go out on time. But the personal touch is still important and shouldn’t be overlooked.
“Meeting with the customer in person [when you can] is important,” says Nelida Nervaag, a credit manager for Robert Madden Industries. “Everything is electronic today. So the personal touch is a great tool for learning about a customer” and especially any cash flow problems.
Nervaag aims to “establish a personal connection with the customer.” As a result, customers call her to alert her to a payment or invoice issue in a prompt fashion.
2. Always be investigating
The chances of a customer warning you it’s about to go under are very slim to none. That’s a reality that C&C Manager Martine Dyer of Restaurant Equipment Service Group is seeing play out in her industry.
“We’re seeing companies, even large ones, file for bankruptcy,” says Dyer. “The investigation never ends. You need to keep searching for information. Payment habits are so important. [Don’t go by a] company’s name” or reputation in the industry.
Tip: Companies can, but frequently don’t, check a customer’s banking history before extending credit. Banking often provides the missing info that’s needed to get the full picture of a customer’s financial health.
3. Don’t hesitate to use leverage
Construction companies, contractors and suppliers that are owed payment can file a lien against the properties they work on in several states. A friendly reminder of that legal leverage helps Marcela Ramon, a credit manager for RCP Block & Brick, prevent late payment hassles.
“We send out automated email reminders of payment coming due a few weeks out, and I’ll send a personal email after that,” says Ramon. If a customer doesn’t respond, Ramon then sends an email spelling out her company’s right to file a lien notice. “We [typically] do this for habitually late payers.”