I was fascinated to see the NSW Government get into nudge theory recently. Their proposition is simple. By reworking the language of their bills and fines collection letters they will drive down the late payment behaviour of Jane and Joe Citizen. Nudging focuses on plain language, key information and simple instructions for next steps. Fair enough, in theory, but I wonder if the likely outcome will meet their expectations. Speaking purely from the sidelines, I wonder what real care the average recalcitrant citizen has for the behaviour of their neighbours when it comes to paying the government’s bills and fines. Media reports suggest that plenty of people just don’t have enough cash. People do tend to put their daily living costs ahead of paying their library fines. I can well imagine there are cohorts who would hold themselves in esteem for their defiance of ‘the man’. And a few of course are just not the sort of people who pay bills and fines under any circumstances.
However it did get me thinking about nudge theory in the corporate world and more specifically around cash management ins and outs. Independent research does suggest that good nudging in your communications can have a meaningful impact oo your results. If your suppliers knew that “our suppliers who correctly issue PO numbers on their invoices get paid within terms 95% of the time,” would that instil in them the urge to follow suit? What about “100% of our suppliers who issue electronic invoices are paid 100% within terms”? You may want to align the language with the scale of your supplier. For a major commodities supplier we want real electronic invoices via trading hub, XML or punch out, but for the local plumber maybe just emailing a PDF! Would that make them think about moving away from envelopes and stamps? iPOS for SunSystems and Workplace for Microsoft Dynamics can help you reduce maverick spend, smooth out your supply cycle, introduce nudge language into your purchase orders, remove paper invoicing and drive down your purchasing costs.
Turning to the sales side of the business, anything that can be done to drive down the days sales outstanding (DSO) and get your cash in the bank is certainly worth trying. Reminder letters are the monthly curse of all Accounts Receivable teams and the first step is to get an automated process to generate the right letters to the right clients at the right time. With that in hand, why not follow the lead of the NSW government and introduce nudge language to your collection letters? I do think that corporates need to start with a less heavy handed approach to their debtors. It is good practice to categorise your clients in terms of their payment behaviour and then draft suitably subtle, and increasingly unsubtle, letters for the various groups. Consider some nudge theory along the lines of “did you know your company is in our lowest quartile for payment within terms?” Or “thank you for your recent/consistent adherence to our payment terms”. Or, if you have to give a tangible incentive “Did you know payment within terms attracts a 3% discount?” And of course there is always the good old fashioned Day-Glo ‘final demand’ style sticker. Why not run some A/B tests to compare a control letter against the nudge trials and look for measurable improved response and shortened time to cash? Collect for SunSystems and Collections Management for Microsoft Dynamics GP can categorise your clients, manage customised receivables letters, automate their creation and despatch and free people up to find ways of reducing your DSO.
You can read more about Professional Advantage and Collect for SunSystems here and Collections Management for Microsoft Dynamics GP here.
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