Corrective Action for Customers Lack/Delays in Payment

S

Sardokar

#1
Hello

i work in a midsize IT company that provides solutions (servers,software,storage etc ) to its customers

one of the biggest problem we are facing at the moment is that we are facing serious collections problems because quite a few of our most important customers are not paying on time (which is contrary to the offer they agreed to and signed )

our cashflow problem actually exceeds several hundred thousand dollars

this is a big problem because this lack of collection is causing us problems with the suppliers (we cant pay them if we dont get paid by our customers and as a result some of our suplliers have put us "on hold" and this is creating delivery problems for OTHER customers


I am wondering if others have experienced this kind of things ( i imagine you have ) ...and how did you resolve it ?


i mean what type of corrective action is possible?

- Stopping selling to those customers seems risky since they are major customers ...plus is it effective?

- Stopping the delivery is also risky

- Firing account managers because of collection problems?

- what else ?

I realise this is a very "generic" topic but i am asking for guidelines and IRL resolutions that could help us resolve our collection problems ourselves

Thanks for any ideas or suggestions you can come up with
 
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T

tomvehoski

#2
I saw similar things back when I was consulting. You are probably not a provider that is critical to daily operations, so you get paid last when the checking account is running low. If you only have $1000 to buy raw material to sell product, or pay your IT past due invoice, you are going to buy the raw material to keep the doors open.

Inform them you will stop delivery until payment arrangements are made. Otherwise you are just going to keep digging yourself into a deeper hole. Does your bank have a problem turning off your credit card if you don't pay? I don't think so. What good is a major customer if they don't pay their bill, cause you late fees, and put you out of business?

Firing account managers is a horrible idea, unless they intentionally got you lined up with risky clients. Companies all over the place are struggling to pay bills - I don't know that you can blame that on your account managers unless they willingly skipped credit checks, etc.
 
#3
You MUST address it directly with your customer. There is no other way. They understand business well enough to know that cash flow is critical to any business. Some customer's will try to get away with late payments as long as possible and will shape up if continually monitored. Others will not and you at HIGH RISK to continue to do business with them. The conversations usually don't need to be unpleasant.
 

rnsvasan

Involved In Discussions
#4
If one of your customers is unable to pay on time, then better you can cut down your commitment to him slowly and start concentrating on other customers from where you can lead your business smoothly. This will help both your self and your supplier chain.
 
A

adickerson

#5
I would talk to your bank. In many cases you may be able to get a short term operating loan by using your receivables (money owed to you by customers) as collateral.

In some industries you can even sell your receivables for short term cash. You may only get 80% of the value but sometimes that is better then going out of business.

A while ago my company sold our receivables that were tied up in the automotive industry bankruptcies. We only got 85% of what we were owed but we got money within 7 days rather than the months or years that the money could have been held in bankruptcy and we got out of any legal costs related to the bankruptcy.

We took a hit but kept the doors open. You may want to talk to your accounting people about this option.
 
C

cSpeedy

#6
It's been two years. I'm curious- have you improved cashflow?
One way to improve collections is automation. This removes excuses.

  • How do you deliver the invoices today?
  • If they don't pay, how long until a reminder is sent?
  • How easy is it for a customer to get access to invoices?
  • If they have a question, do they have a personal contact?
  • Have you assigned a dedicated person for collections?
  • What methods do you have available for customers to pay? The more ways to pay, the more money you'll collect.
Here's how technology can resolve these issues:


  • Automatic reminders for unpaid invoices. Are you doing this now? Do you have any control over frequency?
  • Storing payment methods (PCI compliant) makes it quicker to pay, reducing friction increases number of customers who pay faster.
  • Provide a customer portal to view and pay invoices.
  • Collections plan- get a commitment from worst payers to a payment plan, then put the transactions on automatic pilot
  • Broaden access to customer data- who owes you how much money? Broaden who has access to that information, or set up automated report delivery based on rules you set up.
 
#7
Hello

i work in a midsize IT company that provides solutions (servers,software,storage etc ) to its customers

one of the biggest problem we are facing at the moment is that we are facing serious collections problems because quite a few of our most important customers are not paying on time (which is contrary to the offer they agreed to and signed )

our cashflow problem actually exceeds several hundred thousand dollars

this is a big problem because this lack of collection is causing us problems with the suppliers (we cant pay them if we dont get paid by our customers and as a result some of our suplliers have put us "on hold" and this is creating delivery problems for OTHER customers


I am wondering if others have experienced this kind of things ( i imagine you have ) ...and how did you resolve it ?


i mean what type of corrective action is possible?

- Stopping selling to those customers seems risky since they are major customers ...plus is it effective?

- Stopping the delivery is also risky

- Firing account managers because of collection problems?

- what else ?

I realise this is a very "generic" topic but i am asking for guidelines and IRL resolutions that could help us resolve our collection problems ourselves

Thanks for any ideas or suggestions you can come up with
Sardokar....
I am not certain, but I feel you are in India.
Any organization or person will finally be what they "deserve". No wonder you have been taken on a ride by your customer's, important or otherwise.
I would suggest you first shift the importance on yourself than your customers.
I am certain that you are not into any monopoly business. Are you also very competitive in your pricing ? Have you been studying the customer's performance, and know for certain that the payment are not coming due to their business performance ?
Most likely not ....
Most likely you have let yourself to this situation, which I mean in "deserve".
With all due respects to your important customers, cronic late payers are not being highlighted within your system and you have let them to grow.
Build wider customer base, and until the most overdue payments are not received with the most recent orders, do not accept the orders and bring it back on track to within the payment terms. Monitor this ongoing and if you are still not able to get on track, get on to PDC, LC payment through bank.
 
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