Top 10 Reasons Customers Don’t Pay PCO’s On-Time

A discussion on Indian Pest Control industry’s one major challenge

I wrote on LinkedIn some time ago about our industry’s poor record of collecting payments from customers – you can read it here:  In that article, I coined a new acronym – PCO, which stands for “Payment Collection On-Time” and this article is about why we are unable to do so!

Over 2 decades in our industry, one thing I found unchanged: our inability to ask customers for timely payments.  This sadly has major implications including constrained cash flow, cash-out situation and employees and vendors not being paid in time or at all.  One PCO friend told me the biggest cause for failure of new PCO’s is they ran out of cash, had no way to continue their business and actually had to shut shop.  Paradoxical isn’t it, for a service which has no capital requirements and with some Finance professionals even talking of unlimited Return on Capital Employed (RoCE)(because they believe that one can buy on credit from vendors and get paid in advance from customers!)?.  Of course, we are far from infinite RoCE and could start with limiting our debtors to Days Sales Outstanding (DSO) of less than 30 days (or a month).  It is helpful to discuss what are key reasons why customers say they are unable to pay us – all of these are excuses in some way and many of them are due to our own inefficiency.  My top 10 reasons why customers don’t pay for pest control services are listed below:

  1. Invoice not received – This has to be the #1 reason customers give for not making payment.  And they are right, if they really did not receive an invoice for your services, on what basis will they pay you?  To avoid this, I have successfully used a form – Acknowledgement for Receiving Invoice; after signing on it, the customer can’t deny having received the invoice.

  2. Invoice is under process – The word ‘process’ here sounds ominous as it could mean the payment would happen the next day when you asked for it or the next month or three months later!  It is better that the date of payment be told as the process by itself sounds vague and un-comforting.

  3. Cheque signatory is out of town – This probably takes the cake for reasons you can’t do anything about!  It gets worse if there are multiple signatories.  That is why it is better to ask the customer to switch to electronic payments by online transfers.

  4. We are changing our system – This could mean anything from customer changing their process for payment or replacing the accounting software.  I have found that such changes can lead to months of delay in receiving payment.

  5. We are having an audit – I don’t know if auditors mandate that no payments should be made to vendors, but many customers cite ongoing audits to hold or block payments.  You then have to pray that the audit gets over quickly & your payment is released.

  6. We are waiting for your credit note – This can be very frustrating and irritating.  I have found customers holding on to lakhs of rupees of payment because they did not get a credit note worth a few hundred.  You have no choice but to quickly issue the credit note and ask for your payment.

  7. Amount invoiced is wrong – This could be either excess invoicing or under-invoicing (in rare cases) and many companies refuse to pay unless the amount charged is accurate.  Again, better to submit a revised invoice and ask for payment.

  8. Service record is missing – This happens when records of services across multiple locations are to be given but can also happen when the invoice was submitted without service records to support the payment being claimed.

  9. Work Order not issued – Our industry does have a practice of starting work without written orders and when it comes to payment customer then insists that unless there is a system generation order they won’t pay for services received.

  10. The customer has a cash crunch – This is not good news but some customers have their own problems leading to insufficient funds to pay their vendors.  If you hear this, you have to be worried as it is possible in the worst case, your customer’s company may close & you may lose the entire payment due from them.

The above reasons are ones I have found most commonly and you may have some others to add.  The takeaway from this issue though is that we are in business to ensure cash flow to keep our operations running.  Only then can we be considered a functional business.  I have heard of some other reasons too, like nobody from PCO asked the customer for payment (shocking, but true!).  In some cases, the customer has a dispute and does not want to pay but those are rare instances and even in those, it is better to be upfront and approach the customer to resolve the difference and recover as much payment as possible.  Ledger reconciliation is also a reason we come across frequently but with even minor effort it can be easily resolved if attended to in time and on priority. 

Delayed payments can break a PCO and many PCO’s flaunting their customer list and turnover should be asked the simple question – what is your DSO?  A DSO more than 30 days is a sign of clear and present DANGER and that business could sooner than later become insolvent.  In December 2019, when the Indian economy is showing sluggishness and cases of business failures are mounting, the one thing PCO’s can do is to closely monitor payments and ensure they are collected in time.  The economy will turn around, sooner than later, but only those PCO’s who are present (meaning: ALIVE) will be able to cater to the customers in the market.  For the new year 2020 which is just 3 weeks away, vow that you shall improve on recovery and have DSO that is less than one month.  We shall take up in subsequent issues of PCO Mentor how to manage our payments through simple systems and processes.