Late payments are a serious problem in Australia which causes over $7 billion worth of lost economic productivity every year as a result. When a business pays its supplier late, it creates a chain reaction where its supplier may be forced to withhold its payments.
This can create a major flow-on effect when there are over $115 billion in invoices paid late to small businesses every year.
Unfortunately, small businesses are usually last to receive their payments as larger companies will usually prioritise their larger contractors and suppliers. Being paid late can impact your ability as a small business to pay your expenses (staff, rent, utilities, contractors, suppliers, lease repayments, etc).
Your business must have a contingency plan to ensure that there is adequate capital to operate even in the event of accounts paying late. If you conclude that your business will encounter major problems in such a scenario, it may be prudent that your business considers alternative financing solutions. There are many finance options available to suit all business types and TP24 has a debtor secured line of credit option which is designed for SME’s to help manage their cash flow.
Australian businesses are on average 23 days late in paying their invoices according to a Xero report on late payment. This means that on a standard 30 day invoice repayment period, payments are arriving 53 days from the initial invoice.
If there is an overdue payment, your business should send a polite reminder as soon as it is overdue. A follow-up will generally get their attention, however, if there is no response, a polite phone call to touch base with their accounts department should do the trick. If all else fails or if the amount owing is extremely excessive, contact your lawyers as soon as possible.
Always deal with late payments in a professional manner and explain how late payments negatively affect your business as well as the business relationship. Work out how things can improve going forward and set up changes that make it easier for both parties.
If a client persists in paying late all the time, withhold your goods or services until the balance owing is paid. Advise them that unfortunately, you cannot offer the services unless the balance owing is paid in full. If they refuse to pay, then you may need to consider the value of the client and whether it is worth risking late payment or potentially a defaulted payment. If the risk is too much for your business, considering severing the relationship if you cannot come to a reasonable agreement.
How can your small business automate its process in dealing with overdue payments?
If your business uses accounting software such as Xero, MYOB, Reckon or Quickbooks, you should be able to send an email alert for any overdue payment and receive a notification to let you know you need to follow it up.
Alternatively, if you are a small business that does not use modern accounting software, set yourself a calendar reminder to follow up on your invoices.
TP24 offers a unique solution for SMEs in Australia. We provide a line of credit working in harmony with your software. Secure, flexible credit with limited admin. Get in touch today firstname.lastname@example.org.