Throughout history, credit terms and the way they’ve been offered have changed depending on the strength of the economy. For example, during the Great Recession, many credit managers found that their commercial customers needed extended time to pay their invoices. Businesses and individuals alike struggled to survive in the difficult reality of the stagnant economy.
Now, many of those customers are enjoying the recovery but not necessarily paying earlier. Credit managers are wondering if extended credit terms have become the “new normal.”1
It’s no secret that delayed payments greatly affect your business’s cash flow, harming your ability to purchase supplies and pay your creditors. Delayed or missing payments also affect your ability to continue to deliver cost-effective products and services to all your customers. Finding solutions for commercial debt recovery and avoiding repeated delayed payments are key business functions.
How Would You Respond?
Here’s what an MSCCM client said:
“First thing would be to check if there is a personal guarantee on file (depending on the size and type of organization). Depending on that credit profile, we would consider extended terms.
If a personal guarantee is not applicable, then we would review a business credit report such as Experian or Dunn & Bradstreet and in some cases ask for company financial statements or find them on the customer’s website. Other factors we consider include years in business and any business references the customer has provided. Previous payment experience with the customer can also help support extended terms.”
— Credit director at a national food service product distributor
If you get a request for delayed payment (beyond your agreed net payment terms), you will want to know in advance how you’ll respond. Use these tips to craft effective responses so you can stand firm on your dates and ensure payment.2
- Talk it out. Don’t avoid the conversation; doing so only risks creating the expectation that the request has been approved. Respond promptly and answer the request in a way that fits your needs.
- Offer incentives. If you are able, offer incentives to encourage on-time or early payments by allowing discounts or other bonuses to avoid the delay altogether.
- Consider financing. If a customer is late with payment, consider suggesting financing as a solution to allow her or him to make the payment and avoid the need for formal business collections.
- Consider negotiating. Depending on your business and cash-flow needs, consider negotiating reduced delivery of goods or services to ease the need for a delay in payment.
- Explain your business. Detail for your customers why you need payment to operate and to continue to provide goods and services. You can also let your customers know that your policy prevents you from giving special terms to individual customers; detail the Robinson-Patman Act, which disallows businesses from charging different payment terms and pricing structures to customers of the same grouping.
- Just say no. If a customer requests a delay and you are unable to accommodate her or him, kindly inform the customer that you are unable to extend dates and explain why. This will set expectations and help you avoid making exceptions that aren’t realistic.
- Know your customers. If a customer has always been reliable and a circumstantial issue is behind the request, a one-time “yes” on delay of payment may be worth it to retain the business, if allowed under the Robinson-Patman Act. On the flip side, if the customer is already continually late, reevaluation of your relationship may be necessary.
Despite your best efforts to avoid delay in payment, customers may still ask for special extensions. It’s critical to have a clear business collections process in place to ensure the success of your business.
Work with a commercial debt recovery partner that will help with end-to-end credit management solutions, including how to handle delayed payment requests.
1 CFO. 2013. “When Your Big Customer Wants to Pay Late.” January 28. http://ww2.cfo.com/credit-capital/2013/01/when-your-big-customer-wants-to-pay-late/
2 Credit Today. 2014. “Proven Responses to Requests for Extended Terms.” October 24. http://www.credittoday.net/public/Credit-Today-Benchmarking-Survey-Proven-Responses-to-Requests-for-Extended-Terms.cfm