Chasing up late invoices is likely costing your business a lot more than you think. Even with agreed payment terms in place, Australian business invoices are consistently paid an average of 10 days late, with small and medium businesses being hit hardest of all.
Not only do overdue payments render your cashflow unpredictable, but they can add financial pressure and inhibit your ability to invest, expand and scale up. Until a customer’s payment clears in your bank account, you’re unable to put those funds to work for you and your business. With SMEs generating approximately one-third of private-sector GDP, it is critical the supplier-vendor payment cycle is as smooth as possible, to prevent further payment lags across the wider industry.
The true cost of late payments
The average small Australian business is forced to wait 20.1 days for payment. This may not sound long in the scheme of things, but this equates to small businesses supplying a $600 million line of credit to their customers. In the past, Australia’s Small Business Ombudsman has called for a mandatory, regulated maximum payment time that forces larger businesses to pay up within 30 days – amid a fresh wave of big businesses using the COVID-19 crisis as an excuse for poor payment times.
The cost to your bottom line
One cost that’s largely forgotten when it comes to late invoices is the time spent chasing them up. The labour and effort spent on chasing customers instead of securing new business, making more sales, launching new products and marketing your business is the opportunity cost of late payments. The cost in additional staffing hours may be immediate, but the impact on business growth as a result of stretched resources will be longer-term.
Consistently erratic and unreliable cashflow can affect your ability to pay bills, forcing some business owners into a downward spiral of loan agreements to meet supplier payment deadlines. The total cost of these late repayments by big businesses equates to a whopping $115 billion each year being withheld from small-to-medium business cashflow.
Tips to prevent late payments
Prompt payments empower you to manage your business priorities better, directing resources towards essential needs and opportunities. Just as you ensure you pay your bills on time, in an ideal world, your customers would pay you the same courtesy. Some tips to help lift the late payment curse include:
- Bring your terminal to your customer: give customers the option to pay upfront via a mobile EFTPOS terminal. The quickest way to reduce late payments is to make it easier for your customers to pay on the spot
- Implement clear payment terms: communicating your payment terms clearly from the get-go, and ensuring these terms are mutually agreed upon, puts you in great stead for prompt payments from day one
- Automate your invoicing: one way to cut down on wasted hours is to invest in efficient accounting software. There are dozens of options to choose from when it comes to intuitive solutions; the trick is finding the one that suits your budget and requirements
With lockdowns on and off at any moment, cashflow is increasingly becoming a pain point for many businesses. Ensuring your business is set up to deliver and accept prompt payments will empower you to manage your priorities and direct resources towards helping your business to grow. With more technology available for small businesses than ever before, it’s easier to cut out payment delays by giving customers the option to pay upfront or by automating invoice management. Just a few small adjustments are all it takes to maintain a healthy, thriving business that can, in turn, facilitate positive long-term relationships with your customers.