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What to do when your most valuable customers don’t pay

21/09/2017 / Comments 0

What to do when valuable customers don't pay

The challenges of late payment test businesses in a number of ways. While the main focus typically centres on the financial and cash flow implications, it can also place a huge strain on customer relations.

More specifically, it can create quite a dilemma as to how you handle the credit control process once a customer’s invoice has exceeded terms. Do you go for a more lenient approach in the hope that they’ll respond better to that, or do you instead choose a firmer approach, at the risk of damaging the relationship?

This internal debate is further exacerbated when the customer in question is particularly valuable to the business. The pressure is on to make the right decision.

So, in this instance, just what is the best way to recover your outstanding balance?

How valuable is valuable?

It’s important that we define what we mean by ‘valuable’. In a sense, any customer is valuable, but every business will undoubtedly have a select few who they would regard as particularly important. For instance, it could be a regular customer of many years; perhaps it’s one who buys your goods and services

For instance, it could be a regular customer of many years; perhaps it’s one who buys your goods and services. Or, it could be a regular customer of many years; perhaps it’s one who buys your goods and services infrequently, but places large orders when they do. It could be a good friend of the business, whose relationship is highly valued. Or it could be a high-profile customer, whose name could impress prospective clients and lead to additional enquiries.

Essentially the definition is quite emotive, and it is up to your business to decide who needs any ‘special treatment’ in the event they fail to pay your invoices on time.

So what are the options?

This is the easy part. Regardless of the status of your customer, your business has four broadly defined approaches to select from when chasing them for an overdue payment:

Mediation – In the vast majority of instances, polite and careful mediation should be the first port of call when a customer misses a payment deadline. It could have been an honest mistake on their part, while it’s human nature not to offend people you like. If you get on well with the customer, hopefully they’ll pay you as soon as possible.

A firm stance – Alternatively a firmer approach could be what’s required to encourage payment. Informing your customer that their continued failure to pay will result in legal action or the debt’s referral to a debt collection agency can sometimes be a sufficient trigger for payment to follow. This approach can still be relatively friendly in tone with your credit control team ‘reminding’ them of your policy in the event an invoice is unpaid within a certain timeframe.

Legal – This is probably the strongest course of action, and as such it can damage customer relations – in both directions. Looming legal action can lead to the customer paying, but if they don’t you’ll need to be prepared to take them to court, and accept the costs that route can incur.

Outsource – Somewhere in between options two and three in terms of severity, outsourcing the invoice to a debt collection agency can also be the catalyst to encourage payment. Many agencies will adopt the mediation approach at first, and this is often sufficient as the status of the DCA leads the customer to pay the outstanding amount. If not, they will work with you to explain the remaining options and identify the right approach.

Which is the right one for me?

The first step has to be to simply talk to your customer. Whether over the phone or face-to-face, explain your situation to them – in particular the financial and cash flow implications their failure to pay will have, as well as their value to you as a customer.

Sometimes all a business needs is a reminder of the impact late payment can have. If they’re a loyal customer and you have historically enjoyed a good rapport with them, they won’t want to cause you any financial hardship.

Should this approach prove ineffective, try to stay polite when explaining your credit policy and the steps you’ll be forced to take if payment remains unforthcoming. This reaffirms the importance of having a strong policy in place in the background, so that your team can follow a path that’s based on best practice and past experience to maximise results (read why a credit policy should be at the heart of your credit control).

If you’re still waiting for payment after this stage, tough decisions have to be weighed up.

If they’re a valuable customer because of the size of the order, for instance, then approaching a debt collection agency or taking the legal route should be considered to maximise the chances of recovering payment.

If they’re a regular customer, but they frequently miss payment deadlines, can they truly be classed as a valuable customer? Or in the future, could you demand a deposit or payment up-front? If it’s their first offence, meanwhile, you may wish to be a bit more lenient and afford them a bit more breathing space in the hope they’ll pay soon.

Ultimately, there is no silver bullet when it comes to getting paid. But communicating with them regularly, explaining the impact their lateness is having on your business and reaffirming the options you have in front of you can go a long way to keeping your most valuable customers valuable.

If you need help collecting money from a valuable customer whilst preserving your relationship, we can help. Contact our team on 0800 9774848 or email collections@hiltonbaird.co.uk to find out how.

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