As the debtor’s ledgers of Australian small businesses blow out in the wake of the COVID-19 pandemic and related supply-chain issues, many owners are finding it harder to meet their own payment commitments on time.
Independent research found that in Australia, 63 per cent of small businesses and sole traders are experiencing issues with invoices being paid late.
So, Inside Small Business asked an expert, the founder of a start-up in the payments space, about effective strategies small-businesses owners can embrace to shorten the wait for accounts to be paid, relieving their cashflow issues and allowing them to spend more time focused on running their business rather than chasing payments.
New Yorker Ethan Dobson founded ipaymy in Singapore six years ago. The tech company focuses on digital solutions that streamline the accounts payable and accounts receivable processes for small businesses. Ipaymy operates in Australia, Singapore, Malaysia and Hong Kong.
One of its products is Fetch, a cloud-based digital tool that uses algorithms, ‘nudges’ and incentives to help small businesses get paid on time and in full. Those incentives range from a discount for paying the account early or on time, or instalment offers to make it easier for debtors to break large amounts into part payments – both more attractive options than punitive penalties for late payments. Such a solution has a spinoff effect – it frees business owners from potentially stressing a commercial relationship by chasing payments, and leaves them free to focus on their core business.
“One of the most time-consuming, problematic issues small businesses face this year is getting their invoices paid,” Dobson explains. “The buyer wants to pay later and the supplier wants to be paid sooner – that’s forever in time the dynamic that has been keeping this problem alive.”
Growing up in a family in upstate New York that owned small businesses, the experiences owners face is something near and dear to his heart.
“In any given year, a small business owner is spending the equivalent of 16 consecutive days worth of time chasing invoices and spending somewhere between $6000 and $10,000 of overhead or salary costs for people to help do that.”
So, how can small-business owners ensure they are paid on time? Dobson offers some strategies…
The power of choice
“Giving payment options is incredibly powerful,” says Dobson. Often, businesspeople debate whether invoices should be sent immediately after a task is completed. While he agrees that is important for many businesses, he warns timing is a little more complicated than invoicing immediately.
“You need to understand the customer. There may be a right time and that may not be immediately.”
Dobson recommends all businesses consider using discounts – and, equally, late payment penalties – to encourage customers to pay on time.
Offering instalment plans – especially when a payment falls overdue – and accepting credit cards can also help.
“If you’re a small-business owner and you want to get paid, just flip the table and say, well, if somebody wants me to pay them, what do I want? For me that answer is: I want to be able to pay you how I want. I want to have all these options. And for me, preserving my cash is most important. So if you’re willing to offer me an instalment plan, and I can use my credit card, well, then I’m getting the cashflow benefits while meeting my payment obligations to you.”
On Fetch, a business owner can specify their preferred incentive thresholds, then Fetch takes over, sending communication emails offering incentives to the customer at the best time, managing the instalment payments and other functions, all developed based on a client’s past payment history.
Provide options and be flexible
Fetch has a feature called a dynamic credit card fee selector. When businesses using the platform send out an invoice they can slide the dial on the interface to choose how much of the credit card fee they pay themselves or pass on to the customers. Slide it to zero and the customer paying the invoice pays the full fee, slide it to 100 per cent and the supplier pays the full fee – or split the fee 50/50 in the centre. The scale can be adjusted for each invoice.
Reducing the friction between yourself and the customer is super important, says Dobson. “So if your customer is one that is hesitant to pay with a card because they don’t want to pay the fee, but you really want the invoice paid, well then just drag the slider to the left.
Communication is important
Communication with suppliers about payments should be a priority – and within that, the timing of it, explains Dobson.
Again, he counsels owners put themselves in the customer’s position.
“If you are busy, do you want a phone call at 10 o’clock in the morning to talk about your invoice, or would you prefer a very well composed message – an email or an SMS – to remind you to make a payment?”
Dobson reminds business owners that not every late-paying customer is intentionally late. “Those people are also just running their businesses and they may not have accounting departments or really good processes and procedures in place. So, some of your communication should be about making sure payment is top of mind with customers.”
While some companies will charge a fee for late payments, offering a discount for immediate payment, or for early payment may be equally effective.
“So, it is one thing to provide many different ways to pay, but it’s another to offer payment in instalments, to apply incentives or penalties. Using these different ways, a supplier can really get their invoices paid on time.”
Ipaymy’s internal data reflects the impact of the advent of Covid-19 on payment timeframes during the past two years.
“We saw a large increase in the days past due that invoices were being paid, especially in 2020. When you have any macroeconomic event, like inflation or other things, if your buyers are having trouble getting paid themselves, that’s going to impact you downstream.”
More recently, ipaymy has witnessed payroll files growing after they shrunk “tremendously” as people were laid off or retrenched during the peak of the pandemic.
Dobson stresses that managing accounts receivables is very important when trading times are good.
“If you have a receivables gap during good times, where you’re not getting paid quick enough, well during bad times it is going to be even worse. So if you can bring in technology to shorten the receivables gap and extend your payables on the other side then those things are going to help you weather the storm in the short to medium term.”
Find out more about Fetch and ipaymy’s small-business oriented solutions for getting paid on time here.