If You're Not Delivering an Excellent Customer Experience, You're Making Getting Paid Harder
A Superior CX Facilitates Prompt Payments
A customer who is happy with the way you handled and fulfilled their orders — somebody who has had a good Customer Experience (CX) with your company — is much more likely to consistently pay on time than another firm whose experience was less than acceptable. Among other customer service issues, the absence of fulfillment errors and invoice discrepancies removes valid reasons to delay payment. In addition, your customers’ favorable opinion of you as a quality supplier should influence them to continue paying you on-time in order to maintain a good relationship with you.
Delivering accurate invoices portrays professionalism and attention to detail, thereby fostering trust and potentially leading to faster payment approvals by your customers based on your positive track record. Here’s why billing errors slow down payments:
Dispute Resolution Time: Inaccurate invoices trigger back-and-forth communication to clarify and fix errors. This process can take days or even weeks depending on the complexity of the issue. With an accurate invoice, this entire delay is eliminated.
Approval Workflow Speed: A clear and accurate invoice is more likely to sail through the client's internal approval process. If the invoice requires clarification or has errors, it might get stuck waiting for explanations or corrections.
Here’s a case in point . . . according to benchmarking studies by The American Productivity & Quality Center (APQC), companies in the top quartile of invoice accuracy are paid 19 days sooner than those in the bottom quartile. A big part of the reason for this is that the top performers only have a 4 percent invoicing error rate while the bottom performers’ error rate is over 10 percent. Another factor is that the top quartile corrects invoice errors within a week, while the bottom quartile takes nearly 3 weeks longer to process corrections.
Studies suggest that billing errors can cost businesses anywhere from 5 to 10 percent of their revenue annually. This leakage can significantly impact a company's bottom line. Moreover, one in five organizations encounter billing errors from vendors or suppliers according to the Kroll Global Fraud Report, validating the fact that errors are reasonably common.
Prevention is key. By prioritizing accurate invoices from the start, you can significantly improve your chances of getting paid faster and avoid the hassles of chasing down payments due to billing errors. Too often, we have observed situations where companies are pressed for time and subsequently make mistakes in their order fulfillment and invoicing processes. Unfortunately, it’s a lot more costly to do it over a second time than to do it right the first time. In addition to accurate billing, making it easy for customers to pay you and conduct business with your organization also benefits your cash conversion cycle.
Seven Consequences from Delivering an Inferior Customer Experience
As already noted, a poor CX can have a significant effect on customer payments. Here are seven potential impacts:
Delayed Payments: If a customer is dissatisfied with the service or product provided, they may delay making payments as a form of protest or to leverage negotiation for better terms.
Payment Disputes: Poor experiences can lead to disputes over invoices or services rendered. Customers may refuse to pay until the issue is resolved to their satisfaction.
Reduced Loyalty: A negative experience can erode customer loyalty, leading to a decreased willingness to prioritize payments to the supplier.
Loss of Future Business: Unhappy customers are less likely to engage in future business with the offending supplier, resulting in lost revenue opportunities and further impacting cash flow should the customer choose to take their business elsewhere.
Reputational Damage: Poor CX can damage a vendor’s reputation within the industry, leading to a negative word-of-mouth undercurrent, making it difficult to acquire new customers or retain existing ones.
Increased Costs: Managing payment disputes and chasing overdue payments incurs additional costs in terms of time, resources, and potentially legal fees should the dispute escalate.
Credit Risk: Persistent payment issues with a customer often signal credit risk, impacting a supplier's ability to secure financing or credit insurance related to the receivable in question. This can limit a supplier's capacity to extend credit to other customers.
Ultimately, providing a poor CX can be detrimental to the financial health and sustainability of a business. It's therefore crucial for companies to prioritize delivering exceptional customer service to maintain positive relationships and ensure timely payments.
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Components of an Excellent Customer Experience
In order to build a strong CX, we’ve identified eight areas AR organizations need to address. Getting these right in conjunction with delivering products and services engenders a positive response from your customers. Missing the mark with any of these factors makes it extremely difficult if not impossible to deliver the type of CX that stimulates on time payments:
1. Provide flawless order fulfillment. This is measured by the Perfect Order Index (POI), which is defined as:
Right product
Right quantity
Undamaged/Meets quality specifications
Delivered on time
Delivered to the right location
Delivered in the requested mode (e.g., packaging, labeling, time of day)
Accurate invoice
Achieving only 95% perfection on each above element still results in a high error rate (0.95 X 0.95 X 0.95 X 0.95 X 0.95 X 0.95 X 0.95 = 70% POI). It is difficult to achieve a high POI, but the benefits are huge in terms of customer satisfaction, cash flow and cost efficiency.
2. Meet the customer’s invoice requirements. Your customer’s AP department needs to match your invoice against their purchase order (P.O.) as well as a delivery ticket (or the bill of lading). If that three-way match cannot be handled with automation, or easily done manually, your payment is likely to be delayed. Here’s what customers expect you to provide:
The information required to process your invoice (e.g., P.O. number, product numbers, correct billing and delivery addresses, etc.) — You must ensure the invoice is clear about what is being billed. For example, a high tech client described its products with catalog numbers, such as “AX456.821 – 240 mghz.” This particular product was a patient monitor sold to hospitals. One hospital’s P.O. referred to “Patient Monitors” for the Cardiac Floor. This client’s invoice did not display the term “Cardiac Monitor” or “Patient Monitor” anywhere. The hospital’s AP department, unable to quickly make a 3-way match, would put these invoices aside until they could get clarification as to the items referenced. Give your customer’s AP function a little help. It may involve a bit of invoice customization, or simply providing more information/better descriptions, but it will pay off.
Presentation of the invoice in a mode acceptable to the customer — Each customer can have different requirements for invoice delivery. AP departments use a host of different tools to capture invoices from designated PO boxes (becoming less common) to fax and email servers to AP invoice portals. In many cases, customers now want you to send a digital invoice (aka: an E-Invoice) via email or to their Invoice Portal in order to facilitate automated processing on their end.
Invoice errors and the extra, unnecessary work that results (for everybody) will readily deflate customer satisfaction. Invoice presentment issues can be just as costly. Click here for more information on the importance of invoice accuracy, and here for a checklist of the items to include on an invoice.
3. Accommodate each customer’s preferred payment mode. Paper checks are no longer the norm. The majority of B2B payments are now electronic, so don’t insist on paper checks because that’s the only way you can handle payments. In the US, ACH (automated clearinghouse payments) are the most popular mode, but card payments the fastest growing and include Credit Cards, Debit Cards, P-Cards (aka: purchasing cards that are often used for T&E) and Virtual Cards, which offer security advantages to the supplier accepting them. With the explosion in e-commerce and payment types, Payment Gateways are becoming increasingly popular, especially those that handle multiple modes of payment. Some popular B2B Payment Gateways include Real Time Payments (RTP), FedNow, PayPal, Square, Zelle and Stripe. Here’s more on payments.
4. Practice “First Call” resolution of disputes. Don’t elongate the resolution process. If the dispute is caused by an error in your fulfillment process, fix the error as well as the process so the mistake isn’t repeated. Also, the closer to the time the order was fulfilled, the easier it will be to assimilate all the information necessary to resolve or correct the situation in a timely manner.
5. Provide a single point of contact for billing questions and disputes. A phone number and email for the person that will ‘triage’ these inquiries should be clearly displayed on all your invoices and anywhere else appropriate. Customers benefit by not having to search for the right party to contact when they have an issue. Suppliers also benefit by not having different team members interrupted by inquiries not related to their duties. Additionally, the gate keeper for customer billing inquiries can also be tasked with making sure they are handled promptly.
6. Offer customer self-serve capabilities. This is typically done through an online Customer Care portal that’s available 24/7/365. Invoice Presentment and Payment (EIPP) portals enable customers to obtain additional invoice copies, statements of account, promise and make payment, register disputes, and more. E-commerce suites typically also provide some of these capabilities in addition to facilitating order placement.
7. Provide an uninterrupted flow of products and services. Orders being held due to credit risks caused by accounts exceeding their assigned credit limit or being past due affects order processing. Make sure credit limits are adequate to meet customer requirements. Artificially low credit limits, envisioned as a way to reduce credit risk, often decrease customer satisfaction and create more work. And, don’t be afraid of adopting an aggressive collection strategy. As long as you are professional, the message sent is “we are serious about being paid within terms.” An effective collection process will reduce the number of orders being put on credit hold.
8. Maintain a consistent billing cycle. Whether your business environment demands immediate, weekly, or monthly billings, make sure you stick to the schedule. Weekly billing should always be done on the same day of the week, and likewise monthly on the same day of the month. If you bill immediately, make sure invoices are processed the same or the next day. When you are consistent, customers learn when to expect invoices will be delivered. When you are not consistent, both you and your customers’ routines are affected, and it becomes more likely your invoices will get bumped to a later payment processing date.
In Summary…
Here's a handy table detailing how Order-to-Cash processes can enhance or detract from a favorable CX:
In addition to fostering repeat business and long term relationships with satisfied customers, providing delivery of an excellent CX will also eliminate some of the administrative causes of short and slow payments. By doing order fulfillment and billing right the first time, you make it easier for your customers to pay you on time, as well as eliminating a lot of rework on your end. Lastly, by providing a great CX, you will be encouraging on-time payment as part of a healthy customer-supplier partnership.