Bad Manners? – Michael Dennis, CBF

Bad Manners?

Many debtors seem to think that creditors should always allow a grace period of at least 7 days before calling for payment status on a past due balance.  On more than one occasion, I have been called impolite, rude and even unprofessional because I called to inquire about the status of past due invoices sooner than the debtor considered polite.  I disagree with the necessity of waiting XX days before calling for payment status.

Why?  A collection grace period benefits only your customers.  In my opinion, it is not inappropriate for you to call any customer any time their account becomes past due.  In fact, I think customers that allow their accounts to go past due are acting inappropriately.  Another very real risk associated with creating a grace period is that customers will build your grace period into their payment cycle.  For example, if you do not call until your customers until invoices are at least 10 days past due on Net 30 day terms, it is not a huge leap of logic to assume that at least some of your customers will schedule payments on or about day 40.  Why?  Because they have learned that 40 days is the tipping point.  If they pay in less than 40 days, they are paying too soon.  If you disagree with me, consider asking your company’s accounts payable manager if they would delay payment to a supplier that did not mind being paid ten days late.

Michael Dennis, MBA, CBF, LCM

That’s my opinion.  What’s yours?

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

10 Replies to “Bad Manners? – Michael Dennis, CBF”

  1. I agree, Michael. I have mostly repetitive customers. If i allow them to pay late, it drives up their open balance so they might not be allowed to get the next shipment due to being over limit. I do make some allowance for mail time if being paid by check. However, my customers must provide a check number and date mailed. I know some people think this inhibits sales but i find that when everything flows through on time, sales are actually improved by having no roadblocks. My customers know my rules and are well trained to stay within those rules.

  2. I would chalk this up tom “it’s not what your say, it’s how you say it”.

    I have a collection person who could call customers a week before they are due and likely receive payment. Whereas another individual is gifted at making the customers NOT want to pay (I’m working on that inherited issue).

    In my industry I have terms ranging from 3 to 20 days and I am in complete agreement that constant allowance of an additional time period causes both parties to fail.

    Happy business building!!

    Jim

  3. I also agree wholeheartedley! I do AP and AR so I see both sides of the story. I will delay payments to vendors if they allow it. On the flip side, it is very frustrating when customers do not pay on time and I have to call them monthly or on every invoice. I guess I use the system to my advantage in AP and my customers do the same in AR.

  4. Both sides of this are age old issues. CALL YOU CUSTOMERS WITH A SMILE ON YOUR FACE! Be pleasant and kind, build your relationships and you can never go wrong with a call no matter when the invoice is or was due.

  5. I chalk it up to parenting. You as the creditor set the bar for what is and isn’t acceptable. If a customer has a higher balance coming due, it isn’t unusual for us to place a “courtesy” call to be sure that they have all of the invoices and everything is on schedule for payment. This clearly communicates our intention to receive payment in a timely fashion under the guise of our helpful customer service. =)

    It’s also a perfect tool in “re-training” those customers who have fallen into bad habits…mostly an inherited situation. Our office is the proof that it works…what other credit office gets customers delivering homemade cupcakes! (mind you…this from a customer who was on the cusp of being fired as a customer for extremely poor performance!)

    Say what you mean, mean what you say, just never say it in a mean way and above all else, be consistent! Mixed-messages are toxic!

  6. Hello,

    I agree with Michael. I think as credit managers, we set the guidelines on how our customers pay in general. I am still working on it.

    Linda

  7. We have several customers that get a phone call before the invoice is due, just to make sure that everything is in-line for payment when in-fact it is due. The more time we give customers, the more they will delay their payments. We speak kindly and expect payments timely.

  8. We routinely start our collection calls at 7-10days past due. Sooner when large dollars are involved or when we’ve had previous collection problems. The system seems to work well for us. We have various terms. Our customer generally do pretty good and consequently I only have to do a limited number of calls. Ive only had one customer get all indignant because I called on a past due invoice. His problem was that his other vendors dont call him at 7 days past. What really got me was that he was all fired up and the check had already been sent when I spoke to him. Go figure.
    What I think is impolite and unprofessional are collectors who do not give their customers the benefit of the doubt. A customer says they cant pay now because of thus and so and the collector automatically assumes the customer is giving them a line. That may be the case sometimes, that you’re being strung along, but Id like to think that most customers are pretty honest when they say they cant pay on time.

  9. I agree Michael. I specifically like your statement that “…customers that allow their accounts to go past due are acting inappropriately.”

    The customer will perform to the level we allow them to. How we approach when we will call the customer is, we estimate delivery time (upon receipt of product) and add 3-4 days for the payment in the mail on to the payment terms. We then get on a call with the customer and approach it courteously, yet ask for payment. Of course, establishing a personal relationship (whenever possible), helps make the call less confronting.

    This has helped us continue having optimal control of our accounts receivables. Evidenced by an incredibly low DSO, high collection effectiveness and minimal bad debt.

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