How to respond to late payment excuses
Late paying customers is a common problem faced by most organisations. For a number of years, the Prompt Payment Code has urged large companies to pay suppliers on time and to date there have been over 3000 signatories to the code.
Unfortunately, not all companies share the same philosophy about making payments on time. Some companies will prioritise their cash flow to the detriment of yours by delaying payments for as long as possible.
In this article we look at the most common excuses for late payment and how you can respond, or even proactively prevent your customers using these excuses.
1. We didn’t receive the Invoice
You would think that if you send an invoice it will get paid. Unfortunately, a customer stating that they have not received your invoice is likely to be the most common reason for late payment.
According to the Accounts Payable Association, 57% of invoices are still paper based and are thus sent by post. Post has been known to go missing so therefore in addition to posting the invoice we would recommend that you email the invoice to your customer, particularly now that most businesses operate digitally and some may not be regularly receiving or reading post sent to an office that may be closed or have limited staffing.
Moreover by sending your invoice by email you immediately have evidence that the invoice was sent and received, particularly if you enable read receipt on the outgoing email. If it is getting close to the deadline for making payment, it is often worth calling the customer to double check they have received the invoice and have it on the payment run.
2. Our payment terms are different to yours
Signatories to the Prompt Payment Code have agreed to pay suppliers in 30 days rather than 60 days. However, other large companies may try and leverage their position to secure longer payment terms. This protects their cashflow to the detriment of yours.
If you have contracted for payment to be within a certain period — for example 30 days — some customers may claim that their payment terms apply and they are entitled to pay you in 60 or even 90 days, regardless of what your contract actually says.
If this happens, the first step is to check that you have incorporated your terms and conditions by clearly stating on your invoice or contract that your terms apply and ideally providing a link to, or a copy of, the appropriate terms. If you have, provide the evidence that you have done so to the customer and hold firm on your payment terms.
According to the Federation of Small Businesses (FSB), about 50,000 businesses close every year due to late payments and there is significant support from the Government that businesses should be paid quickly.
3. Invoice did not quote our purchase order number
When placing orders, some companies will issue purchase orders. You complete the order and invoice accordingly. The invoice reaches the customer’s accounts team but they do not make payment. Why?
Administrative issues that prevent payment often occur. The most common administrative issue is the failure to quote the customer’s purchase order number on invoices, meaning the accounts department can not authorise payment.
When invoicing try to provide as much information as possible, such as purchase order numbers that allow customers to easily identify and allocate payment to your invoices. This in turn should hopefully speed up payment to you.
4. I sent the cheque last week
Your customer may have legitimately sent a cheque but it hasn’t arrived. Alternatively, they might simply be buying time. Either way, the cheque hasn’t arrived, therefore it would be in both parties interest to cancel the cheque.
To avoid further payment delay, provide the customer with your bank details and ask for payment to be made by BACS. If they refuse, it’s likely that the customer has a cash flow issue and you may have to escalate it to your debt collection provider.
5. We can’t pay because the boss is on holiday
If in doubt, blame the boss! To buy themselves time, some accounts departments will state that only their boss can approve payment and he is out of the office or on holiday. Restrictive in house polices like this are not your concern. Set a deadline for when you expect payment to be in your account and explain the consequences of non-payment; whether that’s putting their account on stop or even passing the debt to your debt collection provider.
6. We can’t pay you because our customer has gone out of business so we are struggling with our cash flow
If this has happened, it is worth asking some further questions to establish how badly they have been affected by this event. If it is genuine, establish a payment plan that works for both you and them. Although you could take a hard line and commence insolvency proceedings, as the old saying goes, you can’t get blood out of a stone. A payment plan is likely to ensure you get paid earlier and maintain your relationship with your customer allowing you to continue to trade with them in the future.
7. We will pay when we get paid
Unless you contractually agree to wait to be paid until your customer is paid then there is no reason why you should have to wait for payment. If you are in the construction industry, section 113 of the Housing Grants, Construction and Regeneration Act 1996 (‘Construction Act’) prohibits “pay when paid” clauses except where a third party employer is insolvent.
In light of this, you should explain that payment to you must be made regardless of whether they receive payment from their customer. If they refuse, warn them that you will pass the matter to your debt collection provider which may result in additional costs, compensation and interest being added to the debt amount.
I need help with a customer refusing to pay
If you are faced with a customer refusing to pay feel free to contact us here, and we’ll be in touch to explain how Guildways can help you collect your debt on a no collection-no fee basis.
17 Mar 2021