Getting a customer to pay one’s invoice is no easy task, even in times of positive (but modest) economic growth. One firm, TermSync, a software platform that provides business-to-business corporations with payment solutions, set out to find why companies do not pay their bills on time though they may be otherwise financially sound. The reason might surprise CFOs and their accounts receivables staff.
Among the 100 CFOs, controllers and other accounting executives surveyed by TermSync in the U.S. during the first half of 2013, 49 percent cited invalid or missing purchase order information on invoices as a reason that their customers did not pay their bills. TermSync performed an analysis of 10,000 invoices more than 30 days past due from companies that have revenues between $30 million and $200 million.
“A lot of time the vendors knew about an issue; they just didn’t know how big of a deal it was,” says Mark Wilson, CEO and founder of TermSync. He says the data show how big of a problem non-payment issues can be and where vendors might need to allocate resources. Not enough companies are looking at a particular payment stream problem and wondering why it got to that point in the first place, Wilson says.
A retail shop, for example, may submit a purchase order to an auto parts supplier, but what ends up happening, Wilson says, is that the purchase orders at the two companies don’t line up. “If the purchase orders match, then it’s easy to get payments approved. You can cut a check for it when it comes due,” he explains. But if the supplier (the auto parts company) makes a mistake in using the wrong purchase order number on the invoice, the order typically does not get paid.
“The customer [the retail shop] just sits back and waits for the vendor to call them. It could have been resolved on day five instead of day 60, but the customer does not go out of its way to tell the vendor,” he adds.
Another reason for nonpayment in TermSync’s analysis were customers simply not having enough funds. In the study, 27 percent of the vendors surveyed said either their customers did not have enough money or they could not actually get in contact with the customer to discuss the payment.
Non-billing related problems, such as a broken or defective product, made up 13 percent of the reasons for nonpayment. Interestingly, in 11 percent of the cases, the customer did not actually receive the invoice at all.
The kind of problems cited in the study more often plague small businesses than they do larger companies, since small businesses may have neither the time nor the resources to keep up-to-date on all of their receivables. A business-to-business company such as a food or beverage distributor or a building maintenance company, for example, may have difficulty keeping up with billing compared with large companies that have lots of staff, says Wilson.
So what’s the best way to keep payments flowing smoothly? Wilson, a former CFO who had these kind of billing problems, notes that some of that mismatch between purchase order numbers and invoices can be avoided by having CFOs and their staffs apply customer relationship management (CRM) techniques to their back-end operations.
Sales teams routinely use CRM systems to measure how often they are contacting sales leads and to record what the interaction was like. Using integrated, customizable technology to help automate and organize the accounts receivables function, he says, can help staffers keep a closer eye on the money trail.
Even those firms that do not want to run their back-office the same way they run their sales teams, though, will benefit by using more thorough checks and balances in the accounts receivable departments. Firms are too busy blaming the customer for non-payment of bills when several of the problems lie internally, Wilson says. Too often, he notes, simple mistakes by the finance department provide excuses for customers not to pay.