3. January 2022
Avoid late payments: Know the reasons and act in time
Benjamin from Veita
The good news first: Four out of five invoices are paid on time in Europe - this is the result of the EOS study "European Payment Habits" 2019 conducted by the market research institute Kantar on behalf of a receivables service provider. Payment morale is predominantly good - overall it stands at 81 percent in Europe. However, the remaining 19 percent are causing headaches for entrepreneurs: In the study, 43 percent of the companies surveyed said that profit losses are the result. Liquidity bottlenecks and higher interest costs also pose problems in this context. And 15 percent of the study participants even see their existence threatened by delayed or defaulted payments.
So how is it that late payment is the order of the day? Clearly: In some cases, the customer is insolvent and cannot pay even if he wanted to. In other cases, the customer deliberately does not want to pay - whether to save interest or to increase profits in the short term. In these cases, it is difficult to get paid for the goods delivered or services performed after all. But very often, the reasons for late or non-payment are quite simple - and therefore comparatively easy to avoid.
6 common reasons for late payment
Forgotten the invoice? This happens frequently to private customers, but the reasons are different for business customers. The errors that prevent punctual payment often lie in the system.
1) Recursive payment backlog
When customers pay late, liquidity falls: so far, so clear. But when customers of customers pay late, the customer's liquidity drops. And when customers of customers of customers pay late - then what happens is what can often be observed at highway construction sites. A traffic jam develops. Without any apparent reason, blockage or accident, but simply because the brakes are suddenly applied and the following traffic reacts frantically.
However, many payment backlogs could be avoided if it weren't for the construction sites. And there are many of them.
2) Slow processes
Often, there is no human error whatsoever in a late payment: The creditor has issued the invoice promptly, it has reached the debtor quickly, has been processed there and has been forwarded for release. But if the invoice now gets caught up in slow processes, it is no longer possible to make a timely transfer. Approvals can be delayed, for example, or payments can only be made on specified deadlines.
Fortunately, many companies are already working on optimising their processes. In addition, it helps if invoices get there as early as possible.
3) Overworked staff
Restructuring, staff reductions, the switch to hybrid and mobile working, or a lack of training: All this can lead to employees at the customer simply being overwhelmed with the processing of invoices. Either there is hardly any time left - or there is a lack of experience in accounting. As a result, invoices remain with a processor for an unnecessarily long time before they even make it through the rest of the process.
A key objective of successful receivables management must therefore be to make processing as easy as possible for the customer.
4) Incorrect invoices
The fastest way through the process is an invoice with nothing to complain about. Correct invoice amount, logical payment term, account data and order number available - all this must be correct. However, manually created invoices with incorrect totals or missing information are still more common today than some assume. Especially for companies that are new to the business and therefore depend on punctual payment, this is how late payments occur.
Avoiding billing errors can speed up the payment process immensely.
5) Wrong recipient
It sounds mundane, but it can lead to long delays: Invoices that get to the wrong addressee. Because here, all automatic processes end before they have even begun - and the person in the company has to go to great lengths to find out who the invoice is for. Assuming they are also present and not on vacation or sick. A delay in payment of several weeks can thus result from an incorrect e-mail address.
The aim here is therefore to systematically eliminate sources of error. Using intelligent digital solutions for invoicing brings security into play.
6) Lost invoice
It almost sounds like an excuse, but some bills never reach the recipient. Whether digital or analog: Many dangers lurk on the way from outgoing mail to incoming invoices. Spam filters, letter sorting systems, strikes, misconfigurations, cyber attacks or mishaps can cause invoices to simply get lost. Only when the dunning process begins does anyone notice.
The solution here is as simple as the problem: make sure the invoice arrives to avoid late payments.
Avoiding payment arrears from the start: 3 strategies
It turns out that even without insolvencies or audacity, a lot can happen from invoicing to receipt of payment. And what can happen, does happen. Companies that minimize as many sources of error as possible right from the start have an advantage. As a result, the proportion of invoices paid on time can increase measurably, and delays in payment become rarer and shorter.
Simply be faster
Processes are sometimes slow - all the more reason why every minute counts when it comes to invoicing. Because that minute can make a big difference: for example, the payment date this month or not until next month. A receivables management system designed for speed is very helpful here.
Support the customer
Every customer is different - which is why workflows and deadlines should be individually tailored to each customer. Automatic reminders support the customer; centrally available information on the invoice helps answer questions at any time. This ensures that late payments come to light quickly and that dunning or collection procedures do not even begin.
Keeping receivables in view
Only those who are well organized themselves can expect the same from their customers. Smart receivables management therefore provides an overview of receivables, customers and cash flows at all times. Here, too, a short information lead can make a huge difference.
Smart solution for receivables management
This is why not only small companies and start-ups, but also medium-sized businesses are increasingly opting for clear, smart and secure tools for receivables management. Like Veita Collections & Analytics: The cloud-based solution provides an intuitive interface for effective receivables management - with helpful additional functions such as email templates for automatic reminders, individual workflows, convenient task assignment, key figures in real time and payment forecasting.
Those who want to experience the innovative software in action can see the benefits for themselves in a live demo - and get a taste of how late or non-payment will increasingly become a thing of the past.