Waiting…and Waiting…to be Paid
More than a year into the pandemic, aided by widespread vaccine availability and various government programs, the U.S. is well on the way to economic recovery. Some companies are doing better than others. However, the one challenge all businesses are experiencing is payment delays.
According to Dun & Bradstreet and the Credit Research Foundation, 30 of 230 industry segments reported that 10% of aging dollars were more than 90 days past due in Q1 2021. Of those 30, 15 were experiencing excessively late payments (see Figure 1). The printing and publishing industry had the highest percentage of 90-day past due payments (58%).1
Figure 1: Top 15 Industries Getting Paid Severely Late in Q1 2021
|
SIC Code |
Industry |
% Paying Current |
Up to 30 Days Late |
30-60 Days Late |
60-90 Days Late |
91+ Days Late |
|
2741 |
Miscellaneous Publishing |
28% |
8% |
3% |
3% |
58% |
|
1542 |
Nonresidential Construction |
35% |
11% |
8% |
8% |
39% |
|
15 |
Construction – General Contractors and Operative Builders |
35% |
11% |
8% |
7% |
38% |
|
7514 |
Passenger Car Rental |
43% |
15% |
8% |
5% |
30% |
|
5531 |
Retail Home and Auto Supplies |
52% |
3% |
14% |
9% |
23% |
|
5142 |
Wholesale Packaged Frozen Goods |
63% |
13% |
2% |
1% |
22% |
|
55 |
Automotive Dealers and Gasoline Service Stations |
57% |
4% |
12% |
8% |
20% |
|
5047 |
Wholesale Medical and Hospital Equipment |
55% |
1% |
17% |
9% |
19% |
|
13 |
Oil and Gas Extraction |
40% |
24% |
11% |
7% |
18% |
|
7359 |
Equipment Rental/Leasing |
46% |
13% |
13% |
11% |
17% |
|
3822 |
Manufacturing – Environmental Controls |
48% |
22% |
9% |
5% |
17% |
|
3536 |
Manufacturing – Hoists/Cranes/Monorails |
51% |
15% |
15% |
3% |
16% |
|
5712 |
Retail Furniture |
48% |
22% |
9% |
5% |
15% |
|
3444 |
Manufacturing – Sheet Metalwork |
76% |
7% |
1% |
1% |
15% |
|
3993 |
Manufacturing – Signs/Advertising/Specialties |
48% |
23% |
9% |
5% |
15% |
Source: Dun & Bradstreet, “Accounts Receivable Aging Report,” March 11, 2021
How to get paid faster
Effectively managing cash flow is critical to business survival. Adopting a few best practices will ensure you’re getting paid in a timely manner.
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Analyze and update payment strategies.
William F. Balduino, president and COO of the Credit Research Foundation, recommends that credit risk management teams perform a full portfolio analysis to assess and implement appropriate receivables strategies across their customer base.2
Terms that work for one customer might not be right for another. Do some customers pay early? Are others always late? Be strategic in applying terms and discounts based on volume and value. To decide where your team should focus, place all customers into one of four quadrants, with those who pay early versus those who pay late on one axis and strategic customers vs. non-strategic customers on the opposite axis.
-
Ensure employees understand and follow payment processes.
Rigorously train employees to be sure they understand the company’s overall payment goals, procedures, and tools. Sales representatives also need to be familiar with payment policies to ensure they are accurately communicated to customers when they make purchases.
-
Establish expectations with customers.
Based on your organization’s payment strategies, set guidelines for everything from account set up, to billing terms to payment plans. But don’t stop there – be sure clients know what to expect upfront and discuss what you should expect in return. If possible, assign dedicated staff to work with customers when they have questions or concerns. Sales representatives may also be helpful in establishing positive customer relationships.
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Automate AR processing.
Doing away with manual processing eliminates errors and waste, while ensuring that invoices and payments flow smoothly. Businesses with a moderate degree of automation achieve DSOs of 40 days, which is 23% lower than those still using manual systems.3 Companies with automation also see an average reduction of 25% in follow-up (on late payments) delays.4 An integrated dashboard also offers insight into the receivables workstream.
Also consider using robotic process automation bots, application programming interfaces, artificial intelligence and/or machine learning. Many banks and fintechs embed these in their receivable solutions.
-
Make it simple for customers to pay.
Offer your customer multiple means to pay. You’ll want to capture all types of payments, from both paper and electronic sources, and be able to aggregate them regardless of location, type, or channel. This reduces exceptions, eliminates unnecessary deductions, cuts labor costs, and better manages payment relationships.
-
Prioritize collections.
Determining how your company will manage collections should be included in the initial payment strategy. Develop a plan, including timelines, payment options and follow-up tactics, and stick to it. Consider hiring collection specialists who focus only on working past due accounts.
Most customers don’t mean to forgo payment. Be willing to work with them if they’ve experienced hardships or other unforeseen challenges. Try to negotiate a manageable payment plan. These actions may increase the likelihood of payment.
Do you have a strategy for timely customer payments? Contact Synovus Treasury and Payment Solutions, your Treasury Consultant, or Relationship Manager to see how we can help you accelerate receivables.
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Important disclosure information
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