5 min read
Welcome back to Back to Basics - a refreshing revisit of some of the core foundations of credit control. This week we're continuing with the fantastic series The 7 Habits of Highly Effective Invoices, to revisit and refresh on the basics of how to get invoices paid on time. Over the coming weeks, we’ll continue to explore a new habit from the series each week.
Last week we looked at the two critical questions you need to ask to get paid. This week we dive into Habit 6: Mastering the 3 Ps (Part 1).
An invoice has one purpose, and one purpose alone: to get paid on time.
At Chaser, we’re nuts about getting invoices paid on time. Welcome back to The 7 Habits of Highly Effective Invoices, our series on the most valuable things an invoice can do to get paid on time. These are taken from our Founder & CEO David Tuck’s experience working as a Finance Director and Accountant.
Habit 6: Mastering the 3 Ps (Part 1)
We must confess we’ve been secretly looking forward to Habit 6. Because it’s in Habit 6 we move on to what would be our (granted, likely not edge of your seat watching stuff for most!) Mastermind specialist subject; our raison d’etre. And that is mastering the 3 Ps: Polite, Persistence, Pays.
Let’s take a step back. You’ve dutifully followed Habits 1 to 5. Your invoice is all present and correct. It knows where it needs to go. It’s been correctly issued and sent to the right person at your customer. This is fantastic. Give yourself a big invoicing excellence pat on the back. But we can’t rest on our laurels. There’s still more we need to do to help it get paid on time and avoid our own Jerry Maguire moment.
Photo by Neubie / CC BY
Why no money?
Due date has come and gone but your invoice is still unpaid. There are two main reasons why this has happened:
- Your customer has forgotten to pay it. They meant to pay it on time. But they’re busy and, frankly, had higher priorities to attend to so have missed it;
- Opportunism from your customer. They absolutely intend to pay your invoice at some point but equally they’re not a charity. They’d sooner leave the money in their bank account rather than voluntarily put it in yours. It’s a case of “when” not “if” the invoice will get paid. But they’ll pay it as late as possible to boost their own cashflow in the interim.
There are other potential reasons why your invoice has not been paid on time. These include your customer experiencing cashflow problems meaning they can’t pay you. Or there may be a dispute over the work the invoice is for. From experience, these are extremely rare reasons for late payment and it is the two main reasons above we will focus on. So what do we about them?
Easy (3) Ps-y
Polite persistent chasing of your customers (what as accountants we often refer to as credit control) really does pay. It’s the opposite of rocket science. But it’s incredibly effective.
Where your customer has forgotten to pay you, your chaser alerts them so they can pay your invoice. Where you have customers who are very happy to pay your invoices on time but often forget, automatic payment on due date via direct debit can be a great option (GoCardless is a great solution for this). Your customer gets the reduced hassle of having to manually pay your invoices and you get the guarantee of timely payment. From experience, when dealing in larger invoice values and B2B relationships, customers are often reluctant to switch to direct debit because it limits their ability to manage their own cashflow. In which case, polite persistent chasing is essential to get your invoice paid.
What about where your customer is opportunistically not paying your invoice? Your invoice has been issued correctly. The work delivered is what was ordered. Nobody is disputing at all that the invoice amount is legally owed to you. Your customer is just waiting to pay it because, well frankly, because they can. Polite persistent chasing can completely turn the tables. It provides the necessary trigger for your customer to pay your invoice. They move from a position where there is no necessity to pay your invoice (pre chasing) to one where they have no justification for continuing not to pay.
We know this from David’s own experience in wearing the other hat as an SME Finance Director. Naturally an SME will always be watching their cashflow. At month end, say they’re in a position to pay only £20k of purchase invoices but have £40k that are due. How do they decide who to pay? First they will pay any, quite literally, keep the lights on suppliers for electricity and other utilities. Then it becomes a case of the squeaky wheel getting the grease. They will naturally take account of the extent to which invoices are being chased in deciding which ones to pay. And deferring the ones that aren’t on the assumption that if it’s not being chased, they can probably push back payment.
People often tell us that they’ve previously been worried about damage that they might do to customer relationships by chasing invoices for payment. Our (very) short answer is: DON’T. Not to be flippant but as long as you are always polite and not excessively (i.e. every day!) persistent with your chasing, you will be fine. Put yourself in your customer’s shoes. If the overdue invoice is legitimately owed and you are always polite in your chasing, what justification do they have to get inflamed by it? From our experience we have never damaged, let alone lost, a customer relationship due to polite persistent chasing of legitimately due invoices.
We told you we were excited!
That’s a summary of why polite persistence pays when it comes to getting your invoices paid. We haven’t even got in to how to chase effectively - we told you we were excited to write this post! So we’ve taken the executive decision to split Habit 6 into two parts. Plus we love a good mini-series!
So stay tuned next time for Habit 6: Mastering the 3 Ps (Part 2).
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