Negotiating

3. Negotiate and renegotiate if necessary

Your customers do not always tell you immediately why they delay their payments. It is imperative to learn the true motives behind the overdue invoices.

There are customers who delay payments on purpose to improve their cash flow. In this case, they will give you various plausible excuses. It is important to stay alert and spot these stalling tactics. If they say they have already paid, you should ask for proof of payment and details like the date and amount of the payment. If they say there are errors in the invoices, you should check if that is true and send amended copies if necessary.

There are also customers who run up against genuine problems that prevent them from paying their invoices. The most common problems are:

  • Their supply chains have issues
  • They lack resources to manage accounts payable
  • They experience cash flow difficulties
  • They are insolvent.

Throughout your communications with your customers, you should steer them towards solutions for every excuse they have, and keep asking questions to get to the core reasons for their late payments. Once you get there, assess the situations with the customers. It is helpful to be diplomatic while being insistent that you would like to come to an agreement. As long as the renegotiated payment terms align with your organisation's credit policy, you can give them some flexibility. For example, you can work out payment schedules with them if they need more time. Or you can offer discounts if they cannot pay in full due to certain circumstances.

Negotiating payment terms gives you more chance of collecting the outstanding accounts receivable, whether in part or in full. It shows that you are reasonable and willing to maintain the relationships with the customers. It is better than shutting the door on those who just have temporary setbacks, as losing customers does not do your organisation's margins any favours. After setting renegotiated payment terms, you still need to monitor your customers' payment behaviour closely. If they continue to delay their payments, you may need to fall back on a contingency plan, or ramp up your collections efforts.

Next: Expand your collections capacity