If a customer delays payment... Time for the six honest serving men?

In the current climate, it is probably more a question of ‘when’, rather than ‘if’, but for the moment let us stick with the main question.

Either way, payment delays cost you money and increase your risk-exposure.

Although credit control is someone else’s job, you are the one with total responsibility without authority.

And besides, would you really want a finance colleague trying to get incremental sales from a customer, in order to recover lost profit?

The key issue is ‘why’ the delay?

Essentially, the customer is either in trouble, short of working capital or someone else is shouting louder (a rival supplier offering more Settlement Discount?).

‘Who’ is driving them?

If the ‘who’ happens to be the bank, a quick check of their recent annual report (remember ‘what’ you downloaded from Companies House within minutes of publication four months ago but is still on your ‘must-read' list?) in the Balance Sheet ‘where’ in the outside borrowing section you will find creditors i.e those excluding the guys ‘who’ give them credit free of charge, trade creditors, like you…

This will help you calculate their gearing, and if significantly greater than 30% of Shareholders Funds, it is time to reach for the button…

While checking the Annual Report, the P&L will also reveal the Net Margin for two years, and if less than 2% and heading South, any upward correction is going to be at your expense…

‘How’ it happens?

This will come via ‘deductions’, possibly a delay in payment because of faults/shortages in delivery, with each invoice presenting a new opportunity…

‘How’ you deal with rolling invoice queries can be an opportunity for you to shine in in-house financial circles.

‘What’ to do about it?

How about dividing your annual sales to the customer by twelve, and negotiate with their buyer/finance department that they pay a fixed ‘twelft’ each month by standing-order for eleven months, leaving the final month’s invoice for all the queries?

The end-game..

If the customer is simply reflecting a supplier’s bad invoicing discipline, then the above approach combined with more accuracy on your part, will probably work.

However, if the buyer is simply using excuses, any excuses, to delay payment, this will tell you ‘when’ it is time to give the six honest serving men a rest and ring the lawyers…


P.S. According to Kipling, the 'men' rest from nine-to-five, and never skip meals...  Perhaps 24/7 NAMs/ KAMs need other tools for office-hours?