Most businesses have some grasp of how their customers behave but how do you get a better grasp?

Your sales department may be able to provide some indication of how well or not your customers may be doing by monitoring the increase or decrease of sales but it’s your credit control or finance department that will be able to provide a detailed picture. This is because

A good way of monitoring how your customers behave is to have a detailed understanding of their behaviour. What are their patterns, what affects those patterns and how can we improve them.

The following are common customer behaviour patterns you may see in your customers –

  • Prompt Payers (30-40%) – These customers pay on or before the due date. They value strong relationships and good credit standing. Low risk – ideal customers
  • Occasional Late Payers (30-50%) – Pay slightly past the due date due to cash flow management or inefficiencies. Need reminders
  • Chronic Late Payers (10-20%) – Consistently delay payments, often needing follow-ups. Often raise disputes to delay payments. May require stronger terms.
  • High-Risk Defaulters (5-10%) – Regularly default or require legal action.

There are several key factors that affect your customers payment behaviour –

  • Cash Flow Management – Businesses delay payments to manage their own financial health.
  • Economic Conditions – Inflation, interest rates, and economic downturns impact payment speeds.
  • Industry Norms – Some industries (e.g., construction, retail) have longer payment cycles.
  • Invoice Clarity – Ambiguous invoices lead to disputes and delays.
  • Relationship Strength – Businesses with strong supplier relationships prioritize payments.

For the most part there are red flags to look out for that could indicate which of your customers have payment issues.

  • Sudden Delays from a Previously Prompt Payer – May indicate financial struggles.
  • Consistently Partial Payments – A sign of cash flow issues or a tactic to extend payment terms.
  • Increased Dispute Frequency – Could be an excuse to delay payments.
  • Ignoring Payment Reminders and Ghosting Finance Teams –Avoiding calls/emails suggests they are struggling financially.
  • Excuses for Late Payment – Claims like “we didn’t receive the invoice” or “the payment is processing” can indicate possible issues.
  • Frequent Changes in Finance Contacts – May indicate internal problems.

So how could you improve your customers payment behaviour?

  • Offer Early Payment Discounts – Incentivize prompt payments with small discounts.
  • Automate Reminders – Reduce manual effort with email/SMS payment notifications.
  • Enforce Late Fees & Interest – Deter habitual late payments.
  • Monitor Creditworthiness – Regularly check customers’ financial health.
  • Strengthen Payment Terms – Use clear contracts with Net 30/60/90 terms based on risk.
  • Build Strong Relationships – A positive rapport encourages timely payments.

 

So how could you react differently in order to change or pre-empt negative payment behaviour in your customers?

The following are ways of monitoring your customers in order to build up a payment profile which will help decide what terms you set each customer and also how much leeway you will allow regarding payments.

 

  1. Use an Accounting or Credit Control System –
  • Software such as Xero, Sage or SAP can generate reports and automate invoicing.
  • If you use a CRM integration system you will be able to connect finance date with customer profiles to gain a greater insight and understanding of each customers behaviour.

 

  1. Track Key Payment Metrics –
  • Days Sales Outstanding (DSO) – Measures average time customers take to pay.
  • Aging Reports – Categorizes overdue invoices (e.g., 30, 60, 90+ days).
  • Payment Trends – Identifies repeat late payers or improving behavior.
  • Dispute Frequency – Tracks customers who consistently raise invoice disputes.

 

  1. Payment Reminders & Follow-Ups –
  • Email & SMS Reminders – Sends alerts before due dates and after missed payments.
  • Proactive Calls – Builds relationships and reduces risk of bad debt.

 

  1. Set Customer Risk Levels
  • High Risk: Frequent late or partial payments → Stricter credit terms, deposits, or prepayments.
  • Medium Risk: Occasional late payments → Regular follow-ups, reduced credit limit.
  • Low Risk: Consistent on-time payers → Maintain favorable terms.

 

  1. Conduct Regular Credit Checks
  • Use Credit Agencies (Experian, Equifax, Dun & Bradstreet) – Monitors financial health.
  • Internal Scorecards – Rate customers based on payment history and industry risks.

 

  1. Set Clear Credit Terms & Enforce Late Fees
  • Define Payment Terms Upfront – E.g., Net 30, Net 60, with interest on overdue amounts.
  • Charge Late Fees or Interest – Deters chronic late payments.

 

Ultimately and perhaps most importantly – listen to what your finance staff tell you. Your credit control department or finance team will be working closely with your customers on a daily basis and will be best placed to notice any adverse changes. Listen to what they have to say and investigate further if needed. Sometimes they hear things on the grapevine or have a hint from someone who works for your customer that no amount of automation or systems will detect allowing you to minimise your risk.