Your sales team is your first line of defence against late payments
Most businesses we know have a little celebratory dance they keep for days when a big order comes in. Few think about the possibility of late payments.
Quite rightly. It’s a time to stop and reflect on all the hard work you’ve put in and the value you add to customers. So some people are surprised when we suggest holding off the celebrations until the money comes in.
It’s always a revealing conversation when we’re asking what proportion of sales are lost between a customer saying Yes and them actually starting work. The gap varies by sector of course. If you’re selling online then pretty much 100% of transactions fulfil. But the big watchout here is the proportion of goods that are returned. It’s estimated this is over 10% for ecommerce nationally and maybe up to 50% in the clothing sector.
In B2B we’ve known companies where there’s a gap of almost 10% between verbal acceptance rates and Purchase Orders. For whatever reason, internal changes mean that a well-intentioned acceptance doesn’t always convert to revenue.
Late payment is a slightly different issue of course. By that point you’ve completed the work and you hope the only issue is when you get paid, not whether. Yet because you’ve done the work – and almost certainly completed it to your usual high standard – it’s really frustrating when that Due Date slips past and you find yourself with that awkward dilemma of figuring out the “right” time to ask the customer for your money.
It’s more than an administrative burden, it feels unfair and unnecessary.
Whose job is cash collection anyway?
My first sales job was a long time ago, but like anybody I remember vividly the heady excitement of being paid for what seemed like a lot of fun – alongside the tension of someone expecting you to deliver against targets.
And, as we still advise business owners today, those targets were elegantly simple:
- Percentage of £ sales versus last year
- Percentage of invoices paid by the last day of the month
Sales is a perfect environment for demonstrating the principle that you get what you measure, of course. That meant these targets had two effects.
The first was that being targeted on revenue alone meant I focused on big discount deals with large customers, rather than more profitable sales with others. With the benefit of hindsight, the finance director might not have rated me as highly as the sales manager did.
The second effect was that all the sales team stopped selling on the last two days of the month. Sitting in the office phoning people to ask for payment meant a greater chance of hitting your target. The only motivation to leave the office was if a customer said they’d drop a cheque in the post. We can save you postage! Even if that meant driving to their store to collect the money.
The importance of payment terms to ward off late payments
Roll forward a few years and I was dealing with much bigger clients with significantly bigger budgets. Timely payment was even more significant for the financial health of the company.
In these larger business relationships payment terms are a part of the contractual negotiations between companies. Yes, you can have your money in 15 days but it will cost you a surcharge compared to receiving it in 30. Teams of accountants figure out the net benefit of allowing a small discount for faster cash receipt.
This is a long way from sitting on the phone chasing late payment – but the principle remains that it is typically the job of the sales person to structure the “deal” in a way that ensures money comes in when the company expects it.
Larger organisations will have a credit control team, but their job is more about administering the transaction than about agreeing what those terms are in the first place.
Planning your cash collection
Whether you have a sales rep chasing payment at month end, or you have a key account manager negotiating £m deals, the principle here is the same: They need to plan for cash collection.
Every business owner will value cash slightly differently, but your sales people can help you achieve what you need if payment is one of their sales objectives.
Setting these clear objectives means that more of your sales contracts will be structured in a way that gives you funds when you need them. In turn, predictable cashflow helps you rest at night, knowing the work you and your team put in is being rightfully rewarded.
How do you fix late payment?
Sadly this remains a perpetual problem and it’s a source of frustration to many business owners (and sales teams).
Some customers deliberately hold back payment, knowing they can get away with it. Often they’ll build complex administrative hoops into their purchasing process, knowing any excuse to delay an invoice works to their advantage.
Others – often smaller businesses – just don’t allocate the necessary resource to processing payment, meaning you’re simply overlooked. It’s laziness rather than malicious.
The UK government has recognised that late payment typically impacts small organisations more than corporates. With this in mind they are investing in campaigns that aim to close the gap, the latest of which is the Fair Payment Code. https://www.smallbusinesscommissioner.gov.uk/fpc/
We’re very proud to have achieved the Gold Award on this code, which reflects the proportion of invoices paid within 30 days. It’s a clear signal of intent around the way we do business. But the limitation, obviously, is that it’s voluntary. You can choose to work with suppliers who’ve signed up but it will always be a select few who do.
In summary? The key to prompt payment lies in the planning. As far as it’s possible, choose to work with organisations that commit to mutual benefit in their trading relationships. Build timely payment into your customer agreements and – if all else fails – find someone to chase due payments at the end of each transaction period!
If you want to improve the way your commercial relationships are constructed then get in touch with us.