Can’t pay? Or won’t pay?

The seven most common reasons your customers aren't coughing up

Page Kirk's Credit Controller Sam O'Hara looks at the most fundamental, yet thorniest, of issues confronting small and medium-sized businesses. Why exactly are you still waiting for that bank transfer?

There's nothing more frustrating as a business than delivering a product or service to a high standard and then discovering that payment is overdue. There are, of course, a number of steps you can take to recover the money – ranging from polite nagging to legal redress. But today, I want to focus on the other side of the equation. Let's put ourselves in the shoes of the customers. Why exactly are they not paying their bills? Here, in my experience, are the seven most common reasons.

Cash flow

This really tends to be the leading culprit if you are working in a business-to-business environment. Your client is, themselves, struggling to get money through the door and may be temporarily financially embarrassed. Another way of looking at it is that they're using late payment as a short-term financing strategy. The trouble is, it's at your expense.

Process issues

There's always a chance that things have got held up by bureaucracy at the customer end. Sometimes this may be their own fault (approval chains, someone going away on holiday at an inconvenient time), but it may also reflect a mistake that you made yourself. Did you quote an incorrect reference or purchase order number, for instance? It's worth going back to check.

You're not a priority

This is always hard to hear. But if you're a relatively small business and your customer is a larger one, they might have bills that they consider more pressing. They feel there's little danger in failing to pay you and no penalty is going to result from delay.

There's a dispute

Of course, it's possible the customer disputes something on your invoice. Sometimes a relatively minor query can become a reason to delay the whole payment. Perhaps they claim to be dissatisfied with the service they've received, but you only discover this when you press them on the overdue bill. Frustrating.

They don't recognise your payment terms

Many larger businesses think they are able to dictate when exactly it is they pay you. Perhaps you've quoted 30 days on your invoice, but they have a policy of settling bills in, say, 60 or 90 days instead. It's important to have these conversations up front whenever you take on a new client and make clear that your terms are non-negotiable. You can even consider including penalties for late payment.

They're testing boundaries

Are you a new supplier? Is there a danger that your customer is seeing what they can get away with? They want to know whether you will chase and whether you will escalate. It's important for you to draw a line in the sand early on. This kind of brinksmanship might not bode well for your ongoing relationship.

They're unhappy, but not unhappy enough to say it clearly

This is one of the most difficult scenarios to deal with. Perhaps they feel the product or service you delivered was broadly fine, but not that great. Maybe their expectations changed or an internal sponsor who looked favourably upon you has moved on. Rather than have an uncomfortable conversation, they let the payment 'drift' – perhaps hoping that it will get lost in the mists of time.

Although there are no magic solutions to these different issues, it's worth having them in mind and trying to make a judgment call as to which might apply in your own particular situation. From there, you can make a decision about the most appropriate action to take – whether it's a gentle conversation or something a little bit more robust!

If you're interested in finding out how Page Kirk can help you manage your business more efficiently, please give us a call on 0115 955 500  or email enquiries@pagekirk.co.uk.

Written by

Sam O'Hara
Credit Controller
Member of the Page Kirk team since 2012

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Click here to contact Sam.