Ten more reasons customers don’t pay in time for their pest control services
Even after recent financial distress, the Indian pest control industry is not improving on payment collection
One of my early and popular PCO Mentor articles was from the December 6, 2019 issue – Top 10 Reasons Customers Don’t Pay PCOs On-Time. After reading it, we added fifteen new readers. I published that issue before the COVID-19 pandemic, and the two pandemic years of 2020 and 2021 taught valuable cash-flow lessons to our industry, the chief being that “Cash is King.”
Even after being a low-margin industry with a high rate of business closure due to financial liquidity issues, I find no significant change in vendor or customer behavior in pest control services. Most of the PCO shutdowns in 2020 and 2021 have happened from cash-out. As a result, the PCO owners could not continue funding their business or avail of working capital credit or equity investment.
In today’s issue, I explore ten more reasons I discovered why customers had delayed pest control service payments during the past two and a half years.
Not following up on payment: I referred to this issue but did not elaborate on it in my previous article. I realize now that most customers do not get reminders for payment and thus delay their payments. Technology is now available to automate phone messages and emails to customers with due payments. However, continuous follow-up is critical to recovering customer payments, and there is no substitute for reminding customers that their PCO awaits their payment.
Not complying with the company’s credit policy: Credit policies specify the credit period and amount. They also list the steps a PCO will take to recover dues that have exceeded the allowed credit days. However, the credit policy remains on paper without automated systems to stop services or issue recovery notices. As a result, when customers find that a PCO only requests payment but does not initiate any further steps for recovery, they do not treat the matter seriously.
Service deficiency: Citing service deficiencies is common among our industry’s customers. Customers refuse to pay, claiming they received unsatisfactory services. The PCO must examine the evidence and plan the next steps in such instances. Unless there is quick and strong action to dispute the customer’s claim of poor service, a PCO can’t recover its disputed payment. On the other hand, a PCO can address disputes and claims solely to deny payment without any evidence by initiating legal steps to recover dues.
Invoice from prior accounting period: One of the challenging customer practices is to delay payment and then request the cancellation of the due invoice so that they can pay for a current date invoice. At the end of the financial accounting period, this issue comes to the fore. Customers with stringent accounting norms do not pay for dues of the past period for which they have closed their books of accounts. Therefore, PCOs must ensure timely invoice submission to avoid canceling invoices that the customers consider time-barred.
Proof of Goods and Services Tax (GST) credit: Some customers have started asking for proof of GST payment and input tax credit before paying the PCO. As a PCO pays the GST, whether or not the customer pays the PCO, a customer asking for GST proof before payment does not have a valid reason to delay payment.
Customer policy not complying with the law on payments: The Indian law is very clear that the Micro, Small, and Medium Enterprises (MSMEs) are protected by law to receive their payment within 45 days of supply. Numerous Indian corporates, including MNCs, are skirting this law by making their PCO vendors not declare that the PCOs are MSMEs. Further, even when PCOs have submitted MSME declarations, companies are not compliant with the 45-day payment period. All Indian businesses are to declare their delayed MSME payments to the Government of India (GoI) ’s Ministry of Corporate Affairs. I suspect many companies are giving false declarations to avoid paying penal interest to MSMEs whose payments they have delayed beyond the statutory period.
Not seeking redressal through the MSME portal: PCOs are not seeking redressal through the GoI’s Samaadhan portal for assisting MSMEs with delayed payments. Customers paying late are thus getting away without any consequence for not paying their PCOs in time.
Mis-declaration about MSME status: Some PCOs fearing loss of business by claiming MSME status are not declaring that they are an MSME protected by law against delayed payments. If the PCOs don’t support the government using GoI’s enabling legislation, changing the Indian B2B customer behavior of late payments will be difficult. All Indian PCOs are MSMEs and must register themselves with the Ministry of Micro, Small, and Medium Enterprises. PCOs must submit their MSME status to customers and approach the Samaadhan portal for resolution of payments delayed by the customer beyond forty-five days. Our experience is that the Samaadhan mechanism ensures that most customers immediately pay after they hear from the MSE facilitation council (MSEFC).
Customer priority to pay taxes: I heard this reason most recently from a new PCO facing cash flow challenges. This PCO’s B2B customers were delaying payments saying they had a fund crunch to pay advance income tax to the government! If a profitable company pays taxes in advance, it can afford to pay for pest control services.
Poor credit practices are the bane of the Indian pest control industry and one of the key reasons for the industry’s lack of progress. Numerous PCOs keep closing each year as they could not recover customers’ dues and went out of business owing payments to their employees and vendors. Moreover, among the operating PCOs industry-wide habit of extending long credit has created a poor image for the industry as one that is not serious about payment recovery.
Two and half years after PCO Mentor first highlighted the common reasons customers delay payments to PCOs, there is little change in that list! This new list adds more reasons to our industry’s long days sales outstanding, which is sixty to ninety days.