Picture the scene: office, interior, day.
Two coworkers are facing off over a desk. One is holding an invoice with big, red letters across the top, reading, “OVERDUE”. The other keeps glancing at their watch.
We enter the scene in mid-confrontation.
ACCOUNTS RECEIVABLE CLERK:
We’re having trouble collecting payment from one of your customers. Since you sold them the solution, can you step in and help us out here?
They wave the invoice in front of the sales rep. The sales rep shrugs.
If I get in there and annoy them about the money, what happens if I want to upsell them? What happens when they start bad-mouthing us?
Well, what happens to your commission if we never get paid?
It’s my job to sell and your job to collect! I don’t have time to do both.
Well, I don’t have time to keep chasing your deadbeat customers!
Both angrily storm off.
Not to be dramatic, but overdue and delinquent accounts are a threat to your company and your bottom line. Bad debts and poor cash flow are major contributors to business failure.
If too much money is outstanding, it could mean that payroll doesn’t get made or your suppliers don’t get paid on time. This weakens employee trust and jeopardizes your supplier relationships.
In any case, chasing clients for payment causes added stress and workload for everyone involved. Here’s how you and your sales team can help handle and prevent delinquent accounts.
When should sales reps get involved with overdue payments?
As a sales manager, you might agree with the sales rep in the scripted scene above: collecting late payments has nothing to do with your sales team.
Sales, especially in B2B, are all about relationship building. Nothing can cause a rift in a carefully-created relationship like a collections call demanding money.
Your marketing team spent a lot of effort to bring in the lead, as did your sales rep to turn them into a customer, so you might not want to throw that relationship away if it’s simply a late payment or two.
Plus, every time one of your reps gets pulled away from their sales activities to make collections calls, that’s taking time they could have spent more productively, bringing in new accounts that pay their bills promptly.
On the other side is the belief that the sale hasn’t really been made until payment is received. No payment means no sale, which means no commission or recognition for the salesperson’s effort that went into closing the deal.
Your sales reps were in charge of vetting and qualifying the lead during the sales process. When the sale closes, it’s expected that the sales rep is confident they have selected a customer who will follow through with payment.
If commission clawbacks are part of your sales process, sales reps will be responsible for playing a role in getting overdue accounts to pay up. This will usually only occur after accounting has sent invoices, payment reminders, and late notices.
The salesperson will have to find a way to not burn any client bridges while still conveying the urgency of paying up. For example, the sales rep could call to make sure that the client is satisfied and give them a nudge about the overdue payment situation.
Your sales rep is also responsible to weigh in if there’s a dispute about the invoiced amount or a misunderstanding related to the sale. Getting set straight by the sales rep, who has first-hand knowledge of the sale, might go over better with the client than having it come from accounting.
Your sales rep might be able to provide insight into why the account is overdue or why there are issues in collecting payment. For example, maybe the invoices are going to the wrong person or department.
The sales contact might be the end user, who has no idea that their own accounts payable department is not paying in a timely manner. Your sales rep could gently let them know that their account is in danger of going into delinquency.
The client relies on your solution, so a heads-up like this could motivate them to find out on their end why payments aren’t going out. This could resolve the situation without any more intervention from your sales or accounting teams.
What else can you do about delinquent accounts?
If your company has given a client ample opportunity and they still haven’t squared up their account, litigious-minded folks might say, “Just sue them!”
A small outstanding amount might not be worth the time and effort to pursue through the courts, though. A business lawyer could explain your options for legal action and offer their advice on how to proceed.
For example, in some cases, a letter from the lawyer on their firm’s letterhead might be enough to move the payment process along. Or it might go into the void unanswered as well.
Depending on your business model, you could also try withholding something to prompt a payment. For example, you could take down the website you built that you have yet to be compensated for, cancel future shipments, or suspend their software account so they can’t access your online services until their account is settled.
If you’ve done everything you can to recoup the payment, but to no avail, it might not be worth the effort to continue. The best long-term plan would be to cut your losses and write it off.
Plus, if you start annoying the customer or resort to threatening them, it might lead to negative comments and reviews, which could negatively influence prospective customers.
How can your sales team prevent overdue receivables?
Chasing after customers for payment can put your entire company in a difficult situation. So why not avoid it altogether?
Here are 6 ways your sales rep can help prevent delinquent accounts during the sales process:
1. Vet the customer’s reputation
Have your sales reps do their own risk assessment as part of their lead qualification and customer research.
When your sales team is qualifying leads, make sure they quickly scan for any reputational red flags.
Are there any complaints floating around about the prospective customer? Bankruptcy rumours? Have other vendors and customers left positive reviews? What can organizations like the Better Business Bureau tell your reps about how the client company conducts their business dealings?
Your company might also require credit checks before bringing new customers on board.
A credit check can give you information on the customer’s existing business accounts with banks, utilities, suppliers and other creditors. It will also show their payment history and if they have any overdue balances or past-due accounts.
A clean credit check can give your sales reps more confidence that the prospective customer will become a customer in good standing once the sale is made.
2. Create ironclad sales contracts
Your sales documents should be able to withstand any customer challenges and minimize your exposure to risk, like non-payment.
If you’re not a lawyer, you should have one help you put together any documentation. They can advise you on all the details you should (and shouldn’t) include in your terms of service, contracts, and other customer agreement documents.
Even the most thorough sales documents aren’t worth the paper they’re printed on if they’re not signed. Make sure both you and your sales reps are signing and initialling as required.
And, if you’re using an electronic signature option, ensure that it is legally binding. For example, when you use e-signatures on Proposify proposals, the IP addresses of the signing parties and the date and time of signing are recorded, among other security protocols.
3. Set strict payment parameters
Only accept credit card? Let them know ahead of time. Going to need that first credit card payment within 60 days? Yup, that should be noted, and not in tiny print at the bottom of the page. Is there a late payment charge? Ditto.
Make sure these and any other specifications are prominently in your legal documents. This way the customer can’t claim they were caught off-guard by payment stipulations.
4. Manage outcomes and expectations
Don’t get caught in a non-payment situation because of a dispute over project scope. Make sure your quotes, proposals, and estimates clearly state what is included in the project total and what’s not.
Have a detailed statement of work that the client has signed off on. It should cover all the deliverables and the project timeline, as well as how anything outside these parameters will be handled.
This could include additional work, late feedback, or extra rounds of revisions. It should also outline the roles and responsibilities of both the company and the client and the dispute resolution process.
5. Stick to a payment schedule
If you’re working within tight margins or will have a lot of upfront costs to get a customer’s project or service started, getting a deposit from them up front could be the way to go.
A deposit means your company can start fulfilling the order or contract right away. And it means that the customer already has some ‘skin’ in the game, something to lose if they tried to walk away. This makes them less likely to flake on the rest of the project and the rest of your fee.
There are many ways to set a payment schedule: upfront deposit, then steady payments each month until project completion, half up front and the other half on completion, among others. Find the one that works best for your sales team, accounting department, and customers.
6. Rely on your customer success team
Help customers implement and start using your product or service right away with a customer success rep.
Faster onboarding means they’ll see the value more quickly, meaning they might not balk at paying their invoices if they fully understand the worth of what they’ve bought. You could also make your onboarding or training contingent on receiving partial or full payment. Just make sure that’s included in your legalese.
Since customer success will likely be the first point of contact for your customers, they can be proactive in keeping accounts from becoming overdue if they get flagged earlier.
Your customer success rep might be able to quickly check in with a friendly reminder, under the guise of helping them get the most out of the product or service.
They could call a customer whose payment is 85 days overdue to remind them that accounts are suspended at 90 days overdue. “I don’t want you to have to go without our product/service, so I wanted to give you a heads-up in case it slipped your mind.”
Customer success could also monitor for clients who are paying overage penalties and late fees. They might be good candidates for an upsell or to be put on an automatic payment plan.
When clients pull a disappearing act when it’s time to pay, it impacts your entire company. There are many reasons why a customer might be late on payments.
But if your salespeople are putting precautions in place, they can help ensure your customers pay up once the deal is closed and save everyone from the never-ending drama of delinquent accounts.