The Invoice Isn't the Problem. The Unresolved Query Is.

When an invoice becomes overdue, the obvious response is to chase it. Send a reminder, follow up again a few days later and pick up the phone if payment still hasn't arrived.

Sometimes though, the reason an invoice hasn't been paid has very little to do with how often it has been chased.

I'm dealing with exactly this situation for a business at the moment. They have four overdue invoices with a Local Authority and there is no suggestion that the invoices are disputed or that they won't ultimately be paid. The problem is getting them through the processes required for payment to actually happen.

Two of the invoices were being held up because the purchase order that had been raised wasn't enough to cover both of them. I could have continued sending overdue reminders, but it wouldn't have made any difference. The invoices couldn't progress until the PO issue was sorted.

I followed this up with the relevant people and the PO has now been increased, which means those two invoices are being paid.

The other two invoices have a different problem. They don't currently have the purchase orders needed for payment, so I'm still following those up and pushing for the correct POs to be raised.

None of this is particularly dramatic, but it's a really good example of what credit control actually involves.

Chasing isn't always the answer

It's very easy to look at an overdue invoice and assume the next action is another reminder. In reality, good credit control is as much about understanding why an invoice hasn't been paid as it is about asking for payment.

A missing or incorrect PO is one example, but there are plenty of others. The invoice may have been sent to the wrong person, the customer may need a copy, there might be a discrepancy in the amount, a credit note could be outstanding or somebody may have raised a query about the work.

Once you know there's an issue, continuing to send reminders without resolving it doesn't achieve anything. In fact, it can be incredibly frustrating for the customer if they've already told you why they can't process the invoice and nobody has done anything about it.

This is where credit control can fall down even in businesses that believe they are regularly chasing their invoices. Someone sends a reminder, the customer replies with a query, that query gets forwarded internally and everyone assumes it's being dealt with. A couple of weeks later the invoice is still outstanding and another reminder goes out.

The problem was never a lack of chasing. It was a lack of ownership.

“They'll pay eventually”

There's another part of the Local Authority example that I think is important.

You could quite reasonably look at those invoices and say, “They'll pay eventually.” Once the correct POs are in place and everything has gone through the relevant approval process, they probably will.

But the business has already done the work and the payment is already overdue. “Eventually” doesn't help its cashflow now.

This is why consistent follow up matters. If somebody tells me a new PO is being arranged, I don't consider the job finished. I need to know whether it has actually been raised, whether the invoice has then been processed and when payment is expected.

With larger organisations in particular, that can mean dealing with several different people or departments before you get to the person who can actually resolve the issue. It isn't necessarily difficult, but it does take time and persistence.

If credit control is something you're fitting around running the rest of your business, it's very easy to accept “we're sorting the PO” and then realise three weeks later that nothing has happened.

Credit control is about keeping things moving

This is one of the reasons I don't describe good credit control as simply chasing invoices.

Sometimes the right action is a payment reminder. Sometimes it's a phone call. Sometimes it's following up a broken promise to pay. And sometimes it's working out why an invoice can't be processed and making sure the issue doesn't disappear into somebody's inbox.

The person managing the credit control doesn't necessarily have to resolve every query themselves either. If there's a question about the work carried out, for example, somebody else in the business may need to answer it. But somebody still needs to keep hold of the issue and make sure it actually reaches a resolution.

For me, forwarding a query isn't the end of it. I want to know that it has been answered, that the customer now has what they need and that the invoice can move forward for payment.

That is particularly important for customer relationships too. Repeatedly chasing someone who is waiting for you to resolve an issue doesn't make a business look efficient. Dealing with the problem and then following the payment through does.

Take a closer look at your overdue invoices

If you're regularly sending reminders but your overdue balance isn't really changing, it may be worth looking beyond the total and checking what's actually holding individual invoices up.

You may find invoices waiting for purchase orders, approvals or information from somebody within your own business. There may be queries that were raised weeks ago but never properly followed through. You might even find customers who have repeatedly promised payment but nobody has gone back to them when that payment hasn't arrived.

The important thing is knowing what the next action is and who owns it.

That's the difference between having a list of overdue invoices that gets chased periodically and having a credit control process that is actively moving those invoices towards payment.

At INcharge, that's the part of credit control we manage for our clients. It's not about sending more reminders for the sake of it. It's about understanding what's happening with each account, dealing with the things that are holding payment up and consistently following through until the money is paid.

If that sounds familiar, you can find out more about our outsourced credit control services and pricing.