Unpaid invoices: How to maintain a good customer relationship

Lack of communication between customer and supplier is the root cause of tension surrounding payments. In the vast majority of cases, late payment of an invoice is the result of a customer’s cash flow problems. However, customers will typically adopt an insular stance as they feel something akin to shame. They don’t want their cash flow problems to become common knowledge, so they “play dead” and don’t answer calls or reminders from suppliers. But the opposite stance should really be adopted.

It is never pleasant for management to have debts. It is not something they consciously choose. If they find themselves in such a position, it is often because they have no way of settling an unpaid invoice in compliance with the initial payment terms accompanying the order.

Cash flow problems can have an extremely wide range of causes related to management problems or market conditions, for example. Another cause can be non-payment by one of their own customers.

However, it is also possible that the customer does not want to pay because of a dispute over the order – wrong goods or quality issues, for instance. The dispute might involve an infinitesimal part of the order, yet some customers will refuse to pay for an entire order worth £10,000 because of a dispute over £100. Such customers make the dispute a point of principle. Delaying payments for this reason is also a way of retaining cash resources, even when there is not necessarily a need to do so.

Disputing an order is sometimes a legitimate action, delaying payment without informing the supplier about the issue very much less so. This is also a source of tension over payments. The role of collectors in this case is to remind the creditor of decent commercial standards.

If the supplier exerts too much pressure on a customer to obtain payment of an invoice, this is likely to result in a clash. The attitude is understandable, as the supplier needs payments to smooth its own cash flow, but nobody appreciates being put under pressure. Similarly, threatening a customer with legal proceedings is not healthy for a relationship’s long-term future.

Conversely, playing on an emotional connection is no guarantee. The supplier and customer often know each other, which can lead the former to tacitly grant longer payment terms to the latter. The customer can then take advantage of this trust, to prioritise payment of other suppliers with which the relationship is less secure. A customer suffering from several late invoice payments is often tempted to settle the last supplier with which it dealt...

The intermediary has no emotional attachments, and demonstrates openness, listening to the customer to then find an amicable solution. Out-of-court negotiation is preferable, as regards both collecting the money owed and maintaining a commercial relationship. Customers won’t make the same promises to an intermediary as they do to a supplier they know. Once dialogue starts, they usually understand and appreciate the approach.

The ability to listen, educate and instil trust are all factors that smooth dialogue with a late-paying customer. Collectors explain they are there to help find a solution. They therefore explain the position of the supplier who has submitted the overdue payment for them to collect, that they do not intend to act as their customers’ bank. Customers understand these arguments.

Collectors, as a neutral party in the customer’s eyes, can quickly pinpoint the source of the payment problem, and then find a solution that satisfies both sides. If the late payment is the result of a dispute over the order, they collect a description of the shortcomings in question from the customer and the “undisputed” aspects to report this information back to the supplier. If cash flow is the problem, they will suggest rescheduling reasonable proportions.