A recent study conducted by business software, Xero, has uncovered that small to medium sized businesses are losing up to $7 billion worth of cash flow to late payments.
What's more, there is approx $115 billion worth of late payments on outstanding invoices that is creating a "domino effect" on the wider economy by tying up cash flow. It's a big problem and not just confined to the 150,000 businesses surveyed by Xero.
We hear a lot about the detrimental effects of late payments when we talk to our community of retailers and suppliers. And, it's not just the immediate effects of restricted cashflow that are felt but also the limits that are then placed on a business's ability to grow and innovate.
After analysing about 10 million invoices from the July 2017 to July 2018 period, Xero also found that approximately 53% of invoices were paid late by big business and that 46% of small businesses fail within the first five years.
These are some pretty daunting figures, so as a small to medium business owner what can you do to safeguard yourself from becoming a statistic? Well, we've got a few tips to help you.
1. Provide different payment methods
Whilst being busy is one of the most common reasons your customers might give for not getting their payments in on time, it might also be that the payment option you've given them just doesn't work for them. That's why it's always good practice to provide your customers with a variety of different payment methods. Which brings us to tip number 2.
2. Start accepting direct debit or credit cards
Whilst typically, cash has been the go-to for the food and beverage industry, card payments are becoming the most convenient payment method for B2B customers. A 2015 study from Deloitte found that B2B customers rely on cards as their primary payment choice because they are better, faster, and cheaper.
Direct debit payment is another option that you should consider if you want to tackle late payments head on. By charging your customers automatically, as per agreed terms, you'll never have to chase late payments again. We suggest you use a third-party service or an online payment platform that can process direct debit payments for you.
3. Automate your invoices
Where ever you can, choose automation. We hear that a lot of the time, delays in payment happen because customers haven’t received their invoices yet. Automating your invoices will make your process “instant”. Because really the simple fact is the sooner you send your invoice, the sooner you’ll get paid. The other upside of automation is that you'll see your admin work dramatically reduce and you won't have to endure costly manual entry data errors again either. Win-Win.
With the increase in the uptake of digital payment options for both consumers and businesses alike, along with the Federal Government leading the way with it's commitment to pay small business invoices within 20 days, we are seeing a small shift in the status quo.
However it's still a big issue, with the Xero report also showing that by actually solving the problem small and medium businesses (SMBs) would benefit by $4.38 billion over 10 years. So as we move in to a period of soft economic growth it makes sense to make some small changes that will have big impact.
If you think Ordermentum can help you make the changes you need, then request a Demo today.