How to keep track of a customer’s payment status

All businesses need a robust system to keep track of each customer’s payment status. Even for small businesses, it generally makes sense to automate as much of this as possible. This not only saves time but also reduces the possibility of human error. Here is a quick guide on how to create a system that works for you.

Use a payment method that makes it easy to check a customer’s payment status

As a rule of thumb, modern payment methods make it very easy to check a customer’s payment status. You can usually check payment information on a portal. You may also be able to receive direct notifications of relevant events (e.g. payment failures). By contrast, more traditional payment methods tend to require you to keep manual records and undertake manual checks.

Another benefit of modern payment methods is that they often integrate with accounting packages. Even if you’re not using proper accounting software at present, you may wish to do so in the future.

Make sure you understand what each payment status means

Each payment method has its own terminology regarding payment status. The terminology may look similar but may have different meanings. Payment services generally offer some kind of glossary on how they use specific terms. Find it and familiarise yourself with it.

Invoice effectively

One of the major advantages of using a proper accounting package is that it makes it much easier to invoice effectively. In fact, it’s often possible for businesses just to enter the relevant details and have the accounting package handle the rest. 

The accounting package messages the payment system to tell it who is to be billed what and when. Once the payment is made, it is automatically credited to the relevant invoice.

If you really want to make payment as frictionless as possible, then automated bank debits are the perfect choice. With automated bank debits, all the customer has to do is set up the initial authorisation for payment. After that, the payments can be charged automatically.

If you don’t want to use invoicing software, create your own spreadsheet or database to manage payments. Cross-reference this with the information provided by your payment method. In the real world, this approach is only likely to be suitable for the very smallest businesses.

Check your reports or notifications

If you’re using invoicing software, you can usually have it send a reminder if an invoice is not paid correctly. This can be convenient but, like all automated processes, it requires manual oversight. Also, it isn’t necessarily the best approach. It can often be better to check your reports or notifications and follow up personally.

Start with the phone

Many payment issues are administrative issues. These can usually be resolved with a simple phone call. For example, a customer may have forgotten to update their payment details. Alternatively, they may simply have forgotten to process the invoice. These issues are both much more common with card payments than with automated bank payments.

Another possibility is that the customer has actually not received the invoice. Spam filters have their uses but can end up blocking legitimate emails. With automated bank payments, you can charge the customer anyway. This usually prompts them to query the charge with you and discover the issue with the disappearing invoice.

It could also be that the customer is not sure whether or not the invoice is correct. Discuss their concerns with them and follow up if necessary. Also check if you need to update your invoicing process to avoid the same problem in the future.

Customers with payment issues

Payments may also fail due to customers having insufficient funds. When this happens, it’s generally best to start with a soft-touch approach to recovery. This can help to preserve the customer relationship (while still getting you the payment you’re due). 

For example, if the customer is expecting to make a payment themselves, offer to send them a PayTo link. This allows them to make a payment as soon as their own funds arrive.

Follow up with email

If a phone conversation does not resolve, or you can’t get through to the customer, proceed with email. Again, it’s advisable to start with a gentle touch and escalate if necessary. The usual process is to start with a friendly reminder, move to a formal reminder and end with a final request (or demand).

It’s advisable to make the customer aware at every stage that you are open to coming to an arrangement to ease genuine payment difficulties. If this approach does not succeed, then you need to choose between writing off the debt and starting formal recovery proceedings.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.