Valuable lessons for managing accounts receivable (A/R) can come from some unusual places. In fact, any parent who has dealt with an unruly or defiant three-year old is probably familiar with the same behavior that collections departments encounter when dealing with late payments from customers.
No kids? No worries. You won’t have to troll a daycare center or rush out and take a course in early childhood development. In this article, I draw on past experience with my own 3-year old (who’s now 10 by the way) to help you understand some important A/R collections lessons I learned. Knowing what to look for and how to respond to your customers appropriately can make all the difference.
Lesson 1: Use Positive Reinforcement
Just like you’d praise a 3-year old for doing a great job, positive reinforcement works for your customers too. As much as you might discipline or even penalize your late-paying (misbehaving) customers, you also need to praise and reward the ones who pay on-time or early. That might include an email thanking them for early payment, special pricing on a product, or priority ordering on limited items. At the end of the day, it’s not just how much they order from you but also how they pay.
Lesson 2: Make It Easy (Keep it Simple)
When you give toddlers a complex task (or chore) that’s difficult to perform, it’s unlikely to get done. The KISS principle applies here – keep it simple silly.
In business, that means doing everything you can to format invoices exactly the way your customers want it, making sure to include any additional information they need on the invoice, and sending it to the right person (or department) every single time. In addition, an invoice pre-coded with the customer’s GL account number can go a long way in getting it processed and paid faster.
Lesson 3: Don’t Let Them Say “I Forgot”
When it comes to putting toys away or cleaning up after themselves, “I forgot” is something you hear all-too-often from a toddler. When it comes to your customers, this is an easy objection to overcome. Being proactive and sending payment reminders to customers before the bill is due should be a part of your everyday process.
Keeping track of the responses you get is important too because it can help you to spot trends or recurring issues that need to be addressed. For example if every time you send a reminder your customer says they forgot or that the invoice was never even entered into their payables, you may be sending it to the wrong person or there could be some other hitch in the process that needs to be addressed.
Lesson 4: Offer Help Before They Give Up
With a 3-year old, “I can’t do it” usually means “I give up.” When you hear it from a customer, it can mean that they’re potentially headed for bankruptcy and at that point, there won’t be much you can do to collect your money.
The best approach is to avoid letting things get to that stage. The key is to monitor your customers’ ability to pay their bills, keeping a keen eye on warning signs. Changes in their routine such as a growing balance or a sudden switch in payment methods – paying with a credit card after years of paying by check, for example – are things to keep track of. If you see a customer drifting into trouble, find ways to make it easier for them to live up to their commitments.
Lesson 5: Deal with Defiance Head-on and Consistently
Sometimes a 3-year old, or customer, is going to act up. They’ll test the boundaries to see what they can get away with, and sometimes they’ll act downright defiant. You’ll hear things like ‘I won’t do it’, ‘I don’t wanna do it’, or ‘you can’t make me.’
Consistency is the best way to deal with customers who can pay, but won’t do it on-time. If these customers know that every single time they’ll be getting a reminder five days before the invoice is due and you’ll be the first one calling when it goes past-due, they’ll often do what they can to avoid talking to you - even if it means paying the bill ahead of other creditors.
Sometimes when your customer says (in effect) ‘I don’t wanna pay’, there’s an underlying message that they’re unhappy. Dealing with it head-on, finding out what’s bothering them, and working to resolve their dispute will go a long way in getting your invoice paid. (see also: solving invoice disputes in AR)
Lastly when a 3-year old says ‘you can’t make me do it’, you may have to take away a privilege like TV time or desert after dinner. When your customers act up, immediate and corrective action like suspending their account, shutting off future services, and other disciplinary steps may be required. If that doesn’t motivate them to pay their bills, legal action may be required.
Introducing Collect-IT – Accounts Receivable Software for Grown Ups
Thankfully, there’s a way to use technology to help manage these situations effectively and long before you put both hands on your hips and shout something you regret. It’s called Collect-IT – accounts receivable and collections management software for grown ups.
Collect-IT provides the tools you need to create an automated and consistent accounts receivable approach that will have your customers paying on-time, every time.
Among its many capabilities, Collect-IT provides:
- A customer credit scoring system based on payment history
- Automated payment reminders, including re-sending duplicate invoices
- Include supportive (backup) documentation for invoices
- Customer contact type tracking, ensuring your invoices reach the correct recipients
- Invoices and statements that can be configured to look exactly how customers want
- Customer/collection communications tracking
- Tools and reports that help identify at-risk accounts
- Built-in dispute management process
- Complete audit trail of all invoices and customer interactions
Collect-IT works as both a stand-alone application or as an integrated part or your core accounting system by pulling data directly from the accounts receivable module and customer contacts already stored in Microsoft Dynamics GP, Sage 100, and several other popular ERP software systems.
Who knew A/R management and good parenting could be so much alike?
By pairing Collect-IT technology with a few life lessons, you can gain unprecedented control over your entire A/R and collections process.
Click below to learn more about the capabilities in Collect-IT or to request a personal demo and discover just how it easy it is to get paid on-time (much easier than raising a 3-year old!).
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