Through a recent survey of finance professionals, APQC found late payments from customers are among the most common cash flow management challenges facing organizations in 2024. This finding makes sense — delayed customer payments can contribute to a liquidity crunch that prevents an organization from taking advantage of key business opportunities or even simply keeping the lights on.
After reviewing cross-industry cycle times for receiving customer payments, we’ll dig into some of the practices leading organizations follow to bring cash in more quickly.
APQC finds that at the median, organizations wait 26 calendar days between the time they transmit an invoice and when they receive payment from customers. The slowest organizations (at the 75th percentile) wait 35 days or longer, while the fastest (at the 25th percentile) wait 16 days or fewer.
Cycle times for this measure can vary based on industry. Financial services and banking companies tend to have shorter cycle times, with 15 days at the median and 18 days at the upper end of the spectrum. It won’t be especially helpful to compare yourself to these companies if your industry is industrial products, where the median cycle time for payment is 38 calendar days. Find the organizations that most closely match your own for the most accurate picture of where you stand on this measure.
Get Paid Faster
There are at least three effective strategies that leading organizations use to get faster payment from customers: staying connected to customers and keeping the invoice on their radar, making it easier for customers to pay, and following up with customers who are late to pay.
1. Connect with Customers
It seems trivial, but making sure you have the correct billing contact for your customers and that they understand the payment due dates are two of the best ways to ensure your invoice gets paid as quickly as possible. Provide customers with at least an annual opportunity to update their contact information and send system-generated reminders that their due date is approaching (or already passed) to keep the invoice on their radar.
2. Encourage Electronic Payment
Providing easy payment options for customers — and making those options visible — can also help to drive down your cycle time. While some customers are still paying their invoices with a paper check, even in 2024, many would be willing and would even prefer to pay electronically.
If you provide electronic payment options for customers, review one of your most recent invoices to make sure these options are visible and easy to access — not buried at the back of the invoice in tiny print.
3. Invest in Your Collections Effort
The term ‘collections’ is often associated with sternly worded letters and damaged credit relationships, but the work of collections is not always punitive. Developing the capability to follow up proactively with late-paying customers helps you to get paid faster, and in many cases, your customer may appreciate knowing that you’re still waiting too. Especially in a business-to-business context, your customer may think they already paid when in fact (whether due to fraud or problems with AP) that payment has fallen through the cracks.
Reaching out also provides an opportunity to work with your customers if they are having difficulty paying. While the profitability of your own company is your highest priority, you may want to offer flexibility if one of your best customers is struggling now. Keeping that customer, in the long run, may be better for your bottom line than aggressively collecting payment at the expense of your business relationship.
Late payments from customers are a challenge for any industry and contribute to liquidity challenges that can be crippling for your business. Staying connected to your customers and making it easier for them to pay will help to bring cash in more quickly. When customers fail to pay on time, following up with a robust collections effort is an important next step, but it’s important not to alienate your most strategic customers today and lose their business in the future.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.