Improving the efficiency of your payment system

Payment systems and processes are critical to business cash flow.  If your business has inefficient processes you are effectively punishing yourself by extending the time it takes to get a payment from your customer into your bank account. Improving your cash flow can be surprisingly simple, sometimes it just takes a little time up front to reap the benefits in the long-run.

There are two key areas that SMEs need to address to ensure their payment processes are as effective as possible:

Correct mis-directed payments

One of the most common complaints that SMEs and credit departments make is that their clients send their payments to the wrong address, delaying the process for clearing cheques with the bank and hindering business cash flow. However, most firms fail to address this problem directly with their customers as they assume it's not worth the time and effort and they have other priorities which they consider to be more pressing. But, the rewards that stem from addressing misdirected payments far outweigh the associated time and cost.

Customers that refuse to send payments to your PO Box typically direct them to the office address. Firms do this for a range of reasons - for some it is a simple mistake, while for others it is a deliberate tactic to slow down payment. Companies can receive several direct cheques each month and in many cases these payments are sent month after month by the same group of customers. Here's a simple plan to get those stragglers to start sending their payments where you want them.

  1. Encourage your customers to pay the way you want them to: Notify the customer in writing that payments are being sent to the wrong address. This letter should provide the customer with the correct information and request they change the remittance address in their accounts payable system immediately. In addition, if you would prefer a different method of payment (such as EFT), which will assist to get that money in your account more quickly, you should include this information in your communication.
  2. Track changes in behaviour: Once you have communicated with your clients about your preferred method of payment you should track all subsequent payments to ensure they are paid in the manner specified in your communication or at the very least mailed to the right address.
  3. Conduct follow-up if required: If your original letter does not prompt your customers to re-direct their payments you will need to call the customer's accounts payable department to resolve the problem. As necessary, be prepared to talk to a customer's CFO or controller to get the remittance address changed.
Although this process may be a little time consuming (depending on how many clients you currently have directing their payments to the wrong address), it is not complicated process and it's a good investment which will save you time in the long-run and it has the added bonus of improving your cash flow.

Understand your customers' payment preferences

On the flip side, your processes may be slowing down payments from you customers without you even being aware of it. D&B's Business Payment Priorities Study reveals some relatively simple processes that could be improved to significantly reduce the time taken by clients to pay bills.

The study revealed that 20 percent of companies received no contact about their account - an additional four percent received no contact about the bill once it became overdue. Twenty three percent of firms indicated they had paid a bill late because the purchase order number had not been quoted on the bill and 13 percent stated that the bill had been sent to the wrong address.

The study also demonstrated that firms' preferences for reminders about a payment do not necessarily match up with the way companies are communicating with their customers. Forty four percent of firms indicated they would prefer to be contacted about an account via email. A further 27 percent said a phone call was their preferred reminder method and 26 percent would like to receive a reminder letter or bill. However, the most common method of contact used by firms is overwhelmingly a phone call at 84 percent. A letter is the 2nd most common reminder method at 33 percent. Just 12 percent of firms use email to follow-up an account.

The study reveals that by dealing with administrative issues Australian firms can influence the payment behaviours of their customers and ultimately improve their cash position. Executives cannot afford to give their customers excuses to pay their bills late. Otherwise, administrative issues which are relatively simple to rectify will continue to detrimentally impact business cash flow.

Find out more about how you can improve customer payment behaviours - request a copy of D&B's Business Payment Priorities Report by emailing


Connect with us to receive updates throughout the day:

Like us on Facebok Follow us on Twitter

Dun and Bradstreet AustraliaTop of page Dun & Bradstreet Australia Pty Ltd 2015 | D&B Small Business    *About Us    *Sitemap    *Advertise    *Privacy    *Terms & Conditions