Late payers are the noose around the proverbial necks of Australian business owners and franchisors, costing significant time and money. The Australian Small Business and Family Enterprise Ombudsman inquiry into late payments couldn’t have come fast enough for small-business owners and franchisors, who are effectively trying to run their business with an arm tied behind their back. The inquiry is being led by Ms Kate Carnell, who says late payments is one of the most significant handbrakes on business productivity.
The move to improve payment conditions for business comes on the back of the MYOB research which found 77 per cent of businesses had felt some sort of business impact due to a customer not paying their bills on time. And, for 35 per cent of SMEs their personal finances were impacted by late payments, with 32 per cent unable to cover expenses like rent and power.
As the chairman of the Council of Small Business Australia Mr Paul Nielsen rightly points out, some big companies are treating small business, franchisors and suppliers as a bank, which is wrong. Payment terms have become so absurd that recent media reports reveal that Coles Australia now requests a 2.5 per cent discount of its debts with suppliers if they wish to be paid on time.
IODM’s own analysis reveals that for every $50,000 in outstanding invoices, the hidden cost of this debt is $6250, which includes forgone bank interest, overdraft rates, lost business opportunities, no access to early payment discounts and time spent manually chasing debtors.
However, there are steps that small business owners and franchisors can take to wrench back the power.
SME customers who automate their debtor management process have an extra $4375 in their bank account each month, rather than on their balance sheet.
Let me explain: IODM statistics also show that 70 per cent of debtors pay on the third reminder, or go on a payment plan. Therefore, 70 per cent of the $6250 in hidden debt is $4375, which SMEs would have in the bank, rather than on their balance sheet if they automated payments once and for all.
Melbourne advisory firm The Blue Rock is a classic case in point. Their finance department had been managing debtors manually through the generation of a debtor report, then working its way down checking the due dates for each account before sending follow-up emails.
It’s a turn for the books, that’s for sure. It’s only going to be a matter of time before the financial benefits of automation are realised by other Australian SMEs.
Here are five tips on getting paid quicker:
- Make it easy to pay and offer choices
Look into other options apart from cash and direct deposit such as credit card, EFTPOS and BPAY.
- Have a credit policy and stick to it
Don’t just accept payment terms bumping up to 60 or 90 days. Make your payment terms clear with clients when you start working with them so they have no excuses when the deadline rolls around.
- Offer discounts of five to 10 per cent as an incentive to pay early
Getting the cash flowing more readily more than compensates for the marginal lost revenue in offering the discount.
- Friendly reminders are not enough – automate
Simple online systems will automate the invoice chasing process, so set up automatic reminders and say goodbye to those awkward conversations with clients.
- Look for the “Pay Now” option
There’s a growing number of payment platforms offering the Pay Now option, which is another way to get those payments made faster.
Damian Arena, Managing Director, IODM
