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Working Capital Management
The ‘talk’: a conversation with customers about getting paid doesn’t have to be awkward
Make a sale. Deliver the goods (or service). Get paid. Repeat.
It’s the cycle of commerce that makes the business world go round. But what happens when this merry-go-round stops because a customer isn’t paying on time?
For small and medium enterprises (SMEs), it’s more than a bump on the road to profitability: it can slam on the brakes. A missed payment — or payments — from a major client can sap a growing firm of its ability to service other clients, maintain inventory and grow. Yet having “the talk” with a customer about outstanding accounts receivable can be tricky and uncomfortable, to say the least.
SMEs deeply value their big clients; they often don’t run the risk of alienating them, especially those that account for the lion’s share of the business’s revenue. Yet while it can be difficult, the “talk” is something entrepreneurs should have all the same.
In fact, there’s no reason to feel uncomfortable about asking to be paid, says the head of a Toronto-based fintech company that provides invoice funding to Canadian SMEs.
“When you’re not getting paid, keep in mind that the balance of power doesn’t only lie with the customer,” says Steven Uster, CEO of FundThrough.
“You’ve done something that the customer needed or wanted and you deserve to get paid for it, so you should feel very comfortable asking about it.”
The best way to go into that discussion is with some documented backup — an agreement that sets out the terms for payment. In effect, that requires having had the money conversation before a transaction ever took place.
“It’s kind of like the discussions you’d have up front when you get into business with somebody and you create a shareholders’ agreement,” Uster says. “And you stick that in the drawer because you just never know what may come.”
It’s the same deal with a payment agreement, he adds. But entrepreneurs are often reluctant to push for that kind of discussion with new customers for fear they will prematurely spoil the “honeymoon phase.”
Silence before the work starts can lead to misunderstandings once it does. And whether or not there’s a written agreement, a conversation must take place when payment has not been forthcoming. That doesn’t mean you need to play hardball.
“Remember that you are building the relationship with your customer,” Uster says. “Everything in business is based on relationships.”
So keep it cordial and look to leverage the relationship you have with the customer to find out why a bill has not been paid. More often than not, it’s a bureaucratic or clerical snag.
“Very often in these large organizations there is a disconnect between your relationship manager — the buyer who bought the goods from you — and the accounts payable group responsible for paying the invoices,” Uster says.
“To them, you’re often a number. It’s not that they don’t care about you, just that they are focused on the transaction at this point.”
And there’s no harm in contacting the accounts payable department.
“It will not get back to your buyer relationship,” Uster says. “More likely than not, the buyer doesn’t even know you’re not getting paid.”
Of course, another avenue is contacting the individual in the organization you have the relationship with: the buyer.
“Use the relationship that you have with your buyer to sit on the same side of the table.”
The conversation could go like this, Uster adds: “I’m sure you’re not aware of this, and I know you’re very happy with the goods I’ve provided, but for some reason my payment has got caught up in the accounts payable group. Can you help me unlock it?”
It’s likely the buyers will advocate on your behalf if they value the relationship.
Uster adds it’s important to be thorough and open-minded when addressing the issue.
“You have to go through each part of the process and figure out where it’s not working.”
For example: Is your buyer actually advocating on your behalf? More often than not, they might intend to help, but they get wrapped up in their busy schedules and may need a gentle reminder, he says.
It’s also important to examine whether problems on your own end may be holding up payment – a problem with the invoice, for instance, or a dispute over what you actually delivered. If you are focused on helping get to the bottom of what’s causing the delay vs finding blame then things will go a lot faster, and smoother.
If, after making every effort and maintaining your cool, the bill is still outstanding, then it’s time to decide if the customer is worth the headaches, Uster says.
For many FundThrough clients their customers are good payers that simply take a longer time to pay. It’s absolutely worth keeping the customer, the invoice-funding company can simply help eliminate the wait, and the headaches, says Uster.
Originally published in the Financial Post on August 16, 2016
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