Are customer payment habits costing you money?

Customer payments habits have a significant impact on business cash flow. The latest research from Dun & Bradstreet reveals that more than half of Australian executives are being negatively impacted by late payments even though payment behaviours improved slightly during the June quarter. 

Getting customers to pay on time is a continual challenge however, by understanding the distinct categories of bill payers that exist, businesses can enhance their customer relationships and significantly improve payment times. There are three primary categories of payers, they include:  

  • Convenience Seekers: this group is driven by ease and speed of service and if a business delivers these requirements they will establish a long, beneficial relationship with the potential for a high volume of referrals
     
  • Relationship Builders: this category of customer values recognition of their preferences. Relationship builders offer the potential for significant growth and referrals if their need for personalised service is met. 

  • Payment Avoiders: this group consists of people that pay casually or consistently late. They require constant attention from the accounts receivable team and often have an array of reasons for stalling on payment.

Convenience seekers and relationship builders can provide significant value to your business if they are managed effectively, while payment avoiders are a drain on resources and often result in bad debt write-off. Critical to managing all groups of customers is a thorough understanding of payment preferences.

Previous research by Dun & Bradstreet found that Australian businesses prefer to be contacted about an account by email (at 44 percent), phone (27 percent) or letter (26 percent). In addition, the research found that 60 percent of firms would prefer to pay their accounts by electronic transfer. From a consumer perspective, similar trends apply. Sixty two percent of Australians indicated they'd like to be contacted about a bill via letter, while 17 percent would prefer an email. To settle an account the preference is overwhelmingly online payment with a savings account or credit card.

Understanding the account and bill payment preferences of customers is critical to effectively managing their payment behaviours. However, it is also important firms recognise that customers can move between categories. If an individual moves house they could shift into the casual payment avoider category or, if they lose their job they may move into the chronically late payment avoider category. Having a system in place to identify and address these issues as they arise will allow firms to provide an outstanding customer experience which delivers the responsiveness and service required by each type of bill payer.

Finally, it is important that you have a system in place that allows you to manage your accounts receivables effectively. An efficient receivables process is characterised by:

  • the establishment of clear credit terms at the outset of a relationship
  • prompt issuance of invoices
  • tracking of accounts receivable to identify slow-paying customers
  • regular communication with customers to identify and resolve problems before invoices become overdue
  • action taken against a debtor if they are persistently delinquent.

Many smaller businesses simply don't have the capability or capacity to manage the accounts receivable process internally. Don't be afraid to utilise the services of professionals by outsourcing the debt to a reputable collector.

Want to know more about how a collections agency can help your business? Find out by reading 'Bring in the experts' >>

Cash flow is the lifeblood of small business and the payment habits of your customers play a critical role in determining if your business is in the red or the black. By understanding the types of payers that exist, knowing how customers want to be contacted about and pay their accounts and implementing an appropriate collections process your business can improve its cash flow and reduce bad debt write-off. 

As a small business manager it's highly likely you struggle to find the time to chase tardy paying customers. This no longer matters - Dun & Bradstreet has developed D&B Collect, an approach to accounts receivable that is tailored specifically to the needs of SMEs.

D&B Collect is simple, its quick and it delivers you an outcome within 21 days.

For more information about D&B Collect call 1300 833 405

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