If I had R10 for every business owner who has experienced the woes of late payments – I’d be pretty wealthy by now. Late payments are enough to make business grind to a halt, and risk crippling an economy.
They are a cause for huge concern amongst the small business community and lead to unnecessary time wasted. Last year we produced research showing that it was the number one challenge for half of South African small businesses in 2017. This led to significant stress and a reduction in productivity. We found on average, SA SMEs spent 10.4 hours a month on debt recovery alone and spent 1.3 days a month pursuing delinquent invoices.
If you equate these times to salary costs, it can be a significant sum for a small business.
But it is possible to turn your late payers into timely, engaged and happy customers. Here’s how:
The start of a payment relationship
As you would do with any new relationship you enter into with a partner, colleague or friend, in business it’s well worth investing time in the early stages of the client relationship. That way, you can help them to understand your dos and don’ts when it comes to payment terms. You can also learn what money is going out and when for your clients – are they on quarterly or annual, payment terms? Is their year-end December or April? Understanding their payment calendar goes a long way to foreseeing when potential budget restrictions could arise. The earlier you establish a relationship the sooner you can set your expectations.
Check your own admin
There are other more specific things you should do in the beginning to make sure payments are an easy process. Ensure that you’re added to their system (and they yours) with phone numbers, backup numbers, and full addresses. Double check the address – financial addresses can often vary to the physical office addresses.
In addition, make sure to ask for a main point of contact, and secondary point of contact should that person be on holiday. Just because your contact is on holiday, doesn’t mean you should be paid later.
Automate the process
Chasing for money can be really awkward – no one likes asking to be paid (especially if it’s overdue). One thing that can relieve you of this pressure is automation. More often than not, an automated email that’s set to remind your customers to get their payments in will reduce the emails and the calls with their finance team so you’re only exerting effort where absolutely necessary.
Keep on top of payments
If you know what’s supposed to be coming in and out you’ll be able to identify who the late payers are. Spend more time on them and if they’re consistently late, shorten their deadlines if necessary to avoid the knock-on effect.
If you don’t ask, you don’t get
In order to establish an efficient invoicing process that avoids cash flow complications, invoice straight away. And it sounds obvious, but the faster you send your bill, the faster you’re likely to get paid. Clients tend to be more open to paying promptly when they’ve just received the goods or services that you delivered, whilst it’s fresh in their mind.
Many businesses charge fees for late payment, but a more positive approach is to offer a discount for prompt payment. The lure of saving money is a powerful motivator, even if it’s just a few percent discount.
Late payments damage the stability of your finances and can stifle a company’s growth plans – but it’s not just your client’s responsibility. There are steps that you, the invoicer, can take to speed things along. Follow the tips above to increase your chances of receiving prompt payment and improve cash flow in your business.
By Colin Timmis, Head of Accounting SA, Xero