Businesses are being encouraged to review their debtor payment systems and put in place measures to speed up the payment of outstanding invoices by leading finance expert and Earlypay CEO, Daniel Riley.
“Unfortunately poor cash flow is often not a symptom of lack of sales, but a result of poor debtor management,” Riley said.
“Many businesses fail due to cashflow issues because they have not put systems in place to properly manage the fast payment of customer invoices. With businesses under pressure due to inflation, rising costs and labour shortages, cash flow is becoming a bigger issue and is sending many businesses to the wall.”
A recent Xero report found that over 50% of all invoices sent by businesses to customers are being paid late by an average of 23 days.
“While bigger businesses have the capacity to soak up these late payments, small businesses with lower cashflow do not. Small to medium size businesses urgently need to act to improve their systems and put new measures in place to claw back late payments,” Riley said.
Riley has outlined tips on how to get payments in the door faster.
Review the late payments
“Business owners need to take immediate action and review all late payments over a six to 12-month period. Understand which businesses are paying late, by how much time and why. Once you have this information in front of you, you are then able to determine how to respond.”
Adjust invoice dates and payment modes
“Where necessary, adjust invoicing dates for customers. This is important and ensures that payment timelines are adjusted to tighten the period in which customers must pay their bills. Actions can include invoicing certain customers earlier allowing more time to pay, or reducing the amount of time they are given to pay.
“If some customers have been working on 14-day payment terms and are regularly late to pay their invoices, reduce the payment period to seven days. Add additional payment modes to reduce the ability for customers to delay payment due to bank transfers and other issues. The more payment modes, the easier it is for them to pay.”
Set up automatic reminders
“Systems such as Xero enable you to set up automatic reminders when invoices become overdue. Utilise these features to automatically do the work for you. This will prompt customers and should help to get payments in the door faster.”
Add late payment fees
“While not a popular feature of debtor management, it is an effective one. Late payment fees usually encourage customers to pay on time or reduce the number of days they pay late. Sliding scales of late payment fees are also helpful in incentivising fast payment.”
Outsource debtor management
“Debtor management is a time intensive activity and one that needs to be undertaken with care and courtesy. Invoice Finance is one of the fastest growing finance products in the country because it provides upfront payments to businesses for the invoices they generate and can hand over debtor management to the financial organisation, in some cases. The cost is also negligible.”