Late payments are the bane of many Australian businesses, but perhaps even more so for small to medium-sized businesses (SMBs). A recent Sage study reveals late payments collectively cost Australian SMBs $49 billion AUD each year, approximately $41 billion of which is written off as bad debt.
Based on survey responses from over 3,000 SMBs across 11 countries, the study found 9% of all payments to Australian SMBs are late, causing them to spend almost $5,000 AUD per year chasing late payments.
Why do late payments occur?
The study reveals 36% of customers do not give a reason why payment is late. When a reason is given, 12% say the transaction has been made but is pending, while 10% say they only pay invoices at designated times of the year.
However, even though late payments are the fault of customers, the study indicates business owners could do more to chase payments. Twenty-nine percent say they don't do so for fear of ruining customer relationships, while 9% lack a dedicated resource and 8% the time to chase payments.
So how can you address late payments without tarnishing your customer relationships? Here are five tips to help prevent late payments:
#1 Create clear and concise payment plans
Clearly outlining your payment terms at the start of the customer relationship, rather than once an issue arises, can significantly increase the chances of receiving payment sooner.
Make sure your customers completely understand your payment procedures. Provide clear and concise invoices which state the payment due date, along with late payment consequences.
The possibility of incurring late payment fees can make customers wary of paying late. This along with providing clear guidelines for payment helps manage your customers' expectations and gives them enough time to get money together to pay the bill.
#2 Make it easier for customers to pay on time
Automated digital payment methods, like direct debit or e-invoicing, are a great way to ensure payments land in your account as soon as possible.
E-invoicing helps ensure making payment is as easy as possible for customers. Made possible with online accounting software like Sage Business Cloud Accounting, e-invoicing also helps reduce the paperwork and admin associated with traditional payment methods.
Using digital methods can eliminate the constant chasing and awkward chats about overdue payment. They are quick and easy to set up and manage, plus when used with cloud accounting software, they can help you monitor your business's cash flow.
#3 Foster the right relationships
Find out who at your customer's end oversees receiving and paying invoices. Building a positive relationship with this person or team will increase your chances of getting invoices paid on time through weekly chats and constant updates.
#4 Make time for invoicing
Getting customers to pay on time is a two-way street – you and your customers need to work together. Your system for invoicing and accounting is just as important as any other part of your business. Ensure you have a designated team or person overseeing customer payments and invoicing procedures. To make the process more efficient, consider digital payment methods like e-invoicing.
#5 Offer early payment incentives
There's nothing like being rewarded for doing the right thing. One way to encourage on-time payments is to offer incentives, for example, a discount for early payment. Make sure incentives are clearly stated on your invoices and if possible, draw your customer's attention to them verbally.
Sage (FTSE: SGE) is the global market leader for technology that helps businesses of all sizes manage everything from money to people – whether they're a start-up, scale-up or enterprise.Our mission is to free business builders from the burden of admin, so they can spend more time doing what they love. http://www.sage.com/au