Late Payments Are Rising: Should You Follow-Up Sooner?

Credit professionals have reported an increase in delinquent accounts in recent months as customers continue navigating the economic storm. 39% of credit managers say inability to pay is the primary reason for past-due accounts, according to a recent eNews poll—and the dollar amount beyond terms factor in NACM's Credit Managers' Index fell 7.7 points year-over-year to a value of 45.8, reinforcing the same point.

"People are just strapped for cash and are paying who they need to," said Matt Laux, credit manager at Wallace Distribution Company (Morristown, TN). "So, if we're third from their top supplier, we might get paid accordingly as we're not the most important supplier."

More customers are using the excuse of "I can't pay you until I get paid." But the reasons don't stop there—some causes of late payments start with the credit department. 44% of eNews poll respondents said invoicing and billing issues are the main reasons for past-dues. This can be anything from trouble with uploading invoices to customer payment portals to long mailing times.

"We're diligently trying to convert our customers from paper check to ACH payment to reduce our mail float time," said Sam Slifka, credit manager at Steel Summit Holdings, Inc. (Murfreesboro, TN). "The quicker we find out there is an invoice or billing problem, the sooner we can get on it if there needs to be a correction."

One place to start if past-dues are creeping up is changing when you follow-up with customers who are overdue. The majority of credit professionals (43%) take between five and seven days to follow-up with past-due accounts. But some credit departments are outliers in that they either follow up in three days or less (20%) or 15 days or more (25%).

Automation is one way to touch customer accounts sooner and increase the chance of payment, said Martin Smith, CCE, credit manager at Ash Grove Cement Company (Bradenton, FL). "As a credit manager, you need to have a secure knowledge of the software to take the information and make it useful to the collector," he explained. "I have lobbied for the accounts receivable software, GetPaid, which generates automatic dunning letters, analytics and AI."

But some credit professionals do not think that following up sooner is always better—especially if a customer traditionally pays two weeks late. "Waiting to make collection calls actually decreases the amount of collection efforts needed, as it is often times just delays in the payment reaching us and resolves itself," said Melissa Mason, CBA, corporate credit manager at UC Group (Bolingbrook, IL). She starts contacting the customer after 30 days.

Mason said in her experience, unknown disputes are the primary reason for past-due accounts from her two largest customers, which can be traced back to issues with payment portals. "They both use the same portal … and the portal itself is very intricate. So, sometimes it is a matter of an error during order entry or incorrect pricing, but mostly we are dealing with an incredible amount of steps to be followed from order-to-cash due to the portal."

But sometimes the longer you wait to follow-up with a customer translates into the longer it will take to find the root cause of nonpayment, said Adam Ross, CCE, credit manager at PCS Admin USA, Inc., Nutrien (Kenosha, WI). "If you wait until seven days past due to follow up and then find out there is an invoicing issue, you're looking at another 10 days turnaround time to correct the invoice and then another 20 days past due," he explained. "The key is to jump on late payments as soon as possible, assuming you have the staff to do so."

Ross recommends setting specific times to make collection calls and sending follow-up emails each week so the workload does not snowball. "We don't separate collections and credit, so I try to spend two days each week doing collections," he said. "I don't have time not to get those calls made every week. I need to get responses as quickly as possible before the account gets too far past due."

You also may be interesting in reading NACM's latest white paper on Guidelines for Assigning Collector Workload.

-Jamilex Gotay, editorial associate

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Monday, 27 May 2024

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