You do excellent work, provide top-notch service and deliver exceptional value. Yet no matter how satisfied your customers are, they don't always pay on time. This all-too-common problem strains relationships and affects your cash flow, limiting your business's financial flexibility. That’s a serious risk.
For every business that sells on credit, late payments are an issue that can't always be avoided. Sometimes customers are struggling financially. In most cases, however, it's something more mundane.
While there are plenty of reasons a customer might withhold payment, only a few of them are common. And fortunately, most are easily resolved.
Why Customers Delay Payment
Invoicing problems hurt cash flow, impact customer satisfaction and, if they occur often, can seriously damage a company's reputation. With that in mind, here are some of the most common reasons payments are held up and what you can do to avoid this issue.
1. Missing invoices. Invoices can go missing due to a bad email or street address, but it's far more likely that a bill was sent to the wrong person or department. Knowing where customers expect invoices to be sent and understanding their approval processes are key to getting paid on time. If the customer has a dedicated accounts payable email address, use it. If they want multiple people to be copied on the invoice, do that. Avoid sending invoices via postal mail if possible. Paper records are easily misplaced.
2. Missing or incorrect information. Accounts payable staff get extremely busy, and tracking down or correcting billing data isn't always a top priority. If the purchase order number is missing, for instance, or order information doesn't match the customer's records, the invoice is likely to be set aside until either someone has time to call the supplier or the supplier calls to inquire about payment. The combination of centralized data access and AP automation helps eliminate these problems by eliminating duplicate data entry. That improves data accuracy and ensures that invoices include all required information when they are sent.
3. Billing disputes. Using the wrong pricing or billing for products that weren't shipped are sure to cause frustration. Billing errors are more than a customer service issue, however. They can affect cash flow in a couple of ways. Customers typically withhold payment until errors are fixed, which hurts short-term cash inflows, while frequent billing disputes lead to customer churn, hurting long-term cash flow.
Automated invoicing helps avoid billing errors by ensuring the correct pricing is applied to every order and charging only for the actual number and type of items shipped.
For companies that bill customers in increments, invoices may need to be sent on a set schedule or upon completion of a specific set of tasks. Keeping track of these details can be difficult, especially if records are in spreadsheets. But invoicing customers at the wrong time, such as before an agreed-on milestone has been completed, may cause disputes. An accounting solution that gives AR staff the ability to create automated billing schedules simplifies the process and helps ensure customers are billed correctly.
5. Poor formatting. When it comes to deciding which bills to pay, looks matter. A poor or incorrectly formatted invoice is more likely to get rejected. Unfortunately, many billing systems take a one-size-fits-all approach to invoices, providing a limited number of templates that are difficult to customize. This can be a problem if your customers require additional information, such as license number or vendor ID, that isn't included on the standard template.
Invoice requirements can vary by industry or depend on the products and services being provided. A construction company, for instance, may need to include an itemized list of materials used on a project, as well as the hours worked and rates charged. A manufacturer offering promotional discounts might want to add the terms and duration of the promotion to its invoice. Inflexible templates mean a consultant may need to be hired to create a custom invoice format.
Poor formatting also creates the impression that a seller is unprofessional. That’s a red flag, suggesting that the invoice may be fraudulent. And even the merest possibility of fraud is enough to prevent the vendor from getting paid. To avoid either problem, look for a solution that offers flexible standard templates and easy-to-use tools for developing custom invoices.
5. Accounts payable process. A customer’s internal AP processes may also affect when you get paid. If finance cuts checks only once per month, for instance, it may be two or three weeks after the due date on your invoice before payment is issued. A customer is unlikely to change its payment cycle to make it more convenient for you, but it may be possible to accelerate payment by giving them an alternative to cutting a check. They may find paying by credit card, wire or ACH transfer to be more convenient, especially if they make frequent purchases or have recurring charges, such as a subscription fee.
Improve On-Time Payment with NetSuite Invoicing Capabilities
Errors, manual processes, formatting issues and limited payment options can all delay customer payments and impact cash flow. NetSuite automates the entire AR process, from invoicing customers to managing payments, helping improve cash flow by eliminating time-consuming manual processes and ensuring your staffers have access to the critical information they need to produce timely, accurate invoices.
A centralized database provides convenient, role-based access to customer account details, order information and other relevant data from across the organization. Making this data available saves time and reduces errors by negating the need for duplicate data entry. Flexible invoice templates and an advanced layout editor make it easy to tailor invoices to meet customer requirements. And NetSuite's Payment Link feature (opens in new tab)helps accelerate payments by giving customers additional options and a link to pay their bills directly from the invoice.
Watch our recent webinar(opens in new tab) to see how NetSuite helps companies create invoices that get paid faster.