How late invoice payments can put your business at risk
Protect your business from the impact of overdue invoices
Get late payments under control to free up your cashflow.
Late payments, large impact
As the Australian economic uncertainty continues, shrewd business owners are continuing to keep an eye firmly fixed on their cashflow. Even with purse strings pulled tight, late payments put businesses at risk of financial difficulty – with far-reaching ramifications.
Recent research showed 64% of SMEs have been negatively impacted by late customer payments – being paid an average of 6.4 days late.
In this article, we outline how late payments could put your business at risk and the tactics and tools to avoid late payers in the future.
How late payments affect your business cashflow
- Inability to forecast – if you can’t depend on clients to meet your terms, this unpredictability can add to a ‘boom or bust’ mentality that prevents sustainable growth.
- Insufficient working capital – limited cashflow limits your capacity to take on new projects, procure supplies, and invest in new equipment.
- Difficulty meeting operational and supplier expenses – operational efficiency and supplier relationships suffer when you’re unable to keep up with payments.
- Bad credit ratings – inability to pay off loans and credit cards can cause credit ratings to drop, making it more difficult and expensive to access funds in future.
Auditing your Accounts Payable (AP) and Accounts Receivable (AR) terms
Setting appropriate AR terms for your customers is key to preventing late payments. Terms should clearly cover:
- payment deadlines
- how much credit you are willing to extend to your customer.
Aim to set terms that are fair for both you and your customer to encourage a healthy relationship and increase the likelihood of on-time payment.
Tips for avoiding late payments
- Make paying easy – it makes a big difference. Clearly communicate payment options and terms so customers know how to pay and when.
- Consider payment plans – payment plans can ease the financial challenge for customers by breaking the payment down into manageable chunks.
- Consider an early payment discount – if it works for your business, you can offer a saving to encourage customers to pay upfront.
- Send a reminder BEFORE the due date – prevention is better than cure, so stay on top of deadlines.
- Leverage automation – let automated follow ups do the hard work of follow ups for you.
Is it time to renegotiate with customers?
Renegotiating terms with your customers can help to prevent late payments.
Handling these issues with care is key, but it doesn’t have to be awkward or end the relationship. A simple change to align with their own AP terms and time invoices more mindfully can reduce late payments.
About the Payment Times Reporting SchemeThe Payment Times Reporting Scheme aims to improve payment times for Australian small businesses. Under the scheme, large businesses and government enterprises must report their payment terms and times every 6 months.
This creates transparency for small businesses and informs decisions about who they do business with, while public scrutiny encourages large businesses to improve payment times.
Partner up to protect your business
Late payments can have a significant impact on your cashflow. Practice good, sustainable business by staying on top of your terms and supplier terms.
Protect your business from late payments with expert accounting advice.
Ask for a callback from Sheridans Accountants & Financial Planners.